72(t) Rules

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IRS 72(t) Rules You Must Know

 

  • The payments must continue for at least five (5) years or until you are age 59 ½, whichever period is longer.
  • The payments must be substantially equal and generally may not be changed or stopped during the payment term, unless you become disabled or die.
  • You must take the payments at least annually.
  • The 72t payment plan is only applicable to the IRA or IRAs from which you calculated your initial payment. Before setting up a 72tpayment plan, you can split your IRA into two IRAs, if that best meets your needs. You can use one IRA to calculate and take your 72(t) payments, while the other can remain available for future non-72(t) use. Speak to a 72(t) Specialist for details on this strategy.
  • The IRS has approved three methods for calculating 72(t) payments. Those methods are the required minimum distribution (RMD) method, the amortization method, and the annuity factor method. The RMD method will produce smaller payments than the other two methods to start out. While other methods of calculating the payments are not prohibited, it would be extremely risky to use some other method that is not officially “blessed” by the IRS. Speak to a 72(t) Specialist for details.
  • You can switch to the RMD method from either the amortization or the annuity factor method. This is a one-time irrevocable switch and you must use the RMD method for the remainder of the schedule. Consult with a 72(t) Specialist for more information.
  • If you do not stick to your 72(t) payment plan, or if you modify the payments, they will no longer qualify for the exemption from the 10% penalty. The bad news: the 10% will be reinstated retroactively to all the distributions you have taken prior to age 59 ½.
  • An extra withdrawal is considered a modification of the payment schedule. Any change in the account balance other than by regular gains and losses or 72(t) distributions, will be also considered a modification and the 10% penalty will be triggered. This means that you cannot add funds to your IRA either through rollovers or contributions. Consult with a 72(t) Specialist for more information.
  • You can decide to start taking 72(t) payments from your IRA at any age.
  • You may not roll over or convert your 72(t) payments.

IRS 72(t) Rules You Must Know

 

  • The payments must continue for at least five (5) years or until you are age 59 ½, whichever period is longer.
  • The payments must be substantially equal and generally may not be changed or stopped during the payment term, unless you become disabled or die.
  • You must take the payments at least annually.
  • The 72t payment plan is only applicable to the IRA or IRAs from which you calculated your initial payment. Before setting up a 72tpayment plan, you can split your IRA into two IRAs, if that best meets your needs. You can use one IRA to calculate and take your 72(t) payments, while the other can remain available for future non-72(t) use. Speak to a 72(t) Specialist for details on this strategy.
  • The IRS has approved three methods for calculating 72(t) payments. Those methods are the required minimum distribution (RMD) method, the amortization method, and the annuity factor method. The RMD method will produce smaller payments than the other two methods to start out. While other methods of calculating the payments are not prohibited, it would be extremely risky to use some other method that is not officially “blessed” by the IRS. Speak to a 72(t) Specialist for details.
  • You can switch to the RMD method from either the amortization or the annuity factor method. This is a one-time irrevocable switch and you must use the RMD method for the remainder of the schedule. Consult with a 72(t) Specialist for more information.
  • If you do not stick to your 72(t) payment plan, or if you modify the payments, they will no longer qualify for the exemption from the 10% penalty. The bad news: the 10% will be reinstated retroactively to all the distributions you have taken prior to age 59 ½.
  • An extra withdrawal is considered a modification of the payment schedule. Any change in the account balance other than by regular gains and losses or 72(t) distributions, will be also considered a modification and the 10% penalty will be triggered. This means that you cannot add funds to your IRA either through rollovers or contributions. Consult with a 72(t) Specialist for more information.
  • You can decide to start taking 72(t) payments from your IRA at any age.
  • You may not roll over or convert your 72(t) payments.

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Is Using a 72(t) Distribution Right for You? Find Out with a Free Consultation.

72t Rules

If you are thinking that 72t payments may be for you, it is essential that you consult with a 72t specialist. This is not a do-it-yourself project. Committing to these 72t payments is a big decision. These ten 72t Rules are just the tip of the iceberg. 72t planning is complex and the penalties for mistakes are significant. Getting expert advice is a smart move.

Speak with a Professional about the IRS 72(t) Rules

Completing your 72t early retirement distribution and documenting your IRS 72t exceptions correctly, will provide a stream of retirement income. But, if it’s done incorrectly, possibly by withdrawing too much and you can end up broke! Plus, the IRS may assess the 10% penalty on all amounts withdrawn, if the IRA account runs out of money before the end of the 72t scheduled time frame. That’s the rule.

 

Therefore, it’s imperative you work with someone, who has experience with the entire 72t process. CD’s can not be used effectively as an investment vehicle for a 72t distribution.

 

Not all (Financial Advisors, CPA’s, Attorney’s or otherwise) know about this little known 72(t) IRS rule. Also, NOT ALL companies know how to do a 72t, or how to set it up properly, or even have the mechanical or electronic means available, to do such distributions! Very few fixed annuities will work (but some may) because most fixed and Indexed annuities do not allow withdrawals during the first year of the contract and/or greater withdrawals than the earnings growth. Also, most IRA owners want to withdraw more than the growth generated by most fixed and indexed annuities.

Effectively Structuring a 72(t) Distribution

We can provide you examples of the few that will work effectively. Just ask and we can e-mail that information to you. We have effectively set-up 72t distributions for income withdrawals prior to age 59 1/2 many times throughout our 50+ years and it works, if done correctly. It is completely legal and anyone (at any age) can use a 72t The most commonly used (effective) investment vehicles for a 72t are variable annuities.

 

One of the main reasons, is the fact that today’s variable annuities allow you to actively invest your money so it can continue to grow, offer diversification and protection, all at the same time, while you are pulling an income stream from it. Fixed accounts, stock portfolios, CD’s and MOST fixed annuities, are often not the most ideal for doing a 72t. The reason being, as stated previously, that the amount desired to be withdrawn from a 72t often does not adequately match the amount of growth or offer the appropriate amount to be withdrawn. Many companies and many advisors, simply do not know how to properly do a 72t. Work with someone who is experienced and knowledgeable in this very special area.

Planning to Use a 72t?

We have effectively set-up and administered 72t’s for income withdrawals prior to age 59 1/2 MANY TIMES throughout almost 50 years and it works, if done correctly. It is completely legal and ANYONE (at any age) can use a 72t. Once again, many companies and most advisors, simply do not know HOW to properly structure and administer a 72t. Work with a firm who is experienced, knowledgeable and specializes in this specific type of planning.

 

Would you like an ESTIMATE of what YOUR 401(k), TSP, 403(b), 457 plan or IRA might produce for an income, using a 72t for early withdrawals to eliminate the IRS penalty?   Simply provide us: your age, your beneficiaries age, the amount of money in your retirement plan and using the current IRS rates with our 72t calculator, we will prepare an income estimate for you.  FREE.  No Obligation.
Get a Free Estimate Today!

 

NOTE: This early withdrawal provision also works for non-IRA annuities to eliminate the IRS 10% early withdrawal penalty. It’s called a 72(q) for non-qualified annuities and works the same as a 72t for IRA’s. Learn How a 72t Works or if you Got a Question?

 

NOTE: Investment return and principal value will fluctuate, and shares/units, when redeemed, may be worth more or less than their original cost. Past performance is no guarantee of future results. Dollar Cost Averaging does not assure a profit nor does it protect against loss in declining markets. The above reference is NOT an offer to sell a product or service. Neither Spivak Financial Group or Centaurus Financial Inc. offers legal advice. Please consult with a Tax Professional for your personal tax consequences.

Speak with a Professional before Initiating a Rollover or Using a 72t Distribution

Completing your 72(t) early retirement distribution and documenting your IRS 72t exceptions correctly, will provide a stream of retirement income. But, if it’s done incorrectly, possibly by withdrawing too much and you can end up broke! Plus, the IRS may assess the 10% penalty on all amounts withdrawn, if the IRA account runs out of money before the end of the 72t scheduled time frame. That’s the rule.

 

Therefore, it’s imperative you work with someone, who has experience with the entire 72(t) process. CD’s can not be used effectively as an investment vehicle for a 72t distribution.

 

Not all (Financial Advisors, CPA’s, Attorney’s or otherwise) know about this little known 72(t) IRS rule. Also, NOT ALL companies know how to do a 72t, or how to set it up properly, or even have the mechanical or electronic means available, to do such distributions! Very few fixed annuities will work (but some may) because most fixed and Indexed annuities do not allow withdrawals during the first year of the contract and/or greater withdrawals than the earnings growth. Also, most IRA owners want to withdraw more than the growth generated by most fixed and indexed annuities.

Effectively Structuring a 72(t) Distribution

We can provide you examples of the few that will work effectively. Just ask and we can e-mail that information to you. We have effectively set-up 72t distributions for income withdrawals prior to age 59 1/2 many times throughout our 50+ years and it works, if done correctly. It is completely legal and anyone (at any age) can use a 72t The most commonly used (effective) investment vehicles for a 72t are variable annuities.

 

One of the main reasons, is the fact that today’s variable annuities allow you to actively invest your money so it can continue to grow, offer diversification and protection, all at the same time, while you are pulling an income stream from it. Fixed accounts, stock portfolios, CD’s and MOST fixed annuities, are often not the most ideal for doing a 72t. The reason being, as stated previously, that the amount desired to be withdrawn from a 72t often does not adequately match the amount of growth or offer the appropriate amount to be withdrawn. Many companies and many advisors, simply do not know how to properly do a 72t. Work with someone who is experienced and knowledgeable in this very special area.

Is Using a 72(t) Distribution Right for You? Find Out with a Free Consultation.

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