What Is 72T?

The Internal Revenue Service (IRS) has a rule called 72t, and by using the 72t rule, it eliminates the 10% early withdrawal penalty normally due for withdrawals prior to age 59½.

Would you like a personalized 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?

Complimentary. No Risk. No Obligations.

72(t) Professor billboard banner

What Is an Early IRA Distribution?

We are often asked, “How can I retire early and take money out of my 401k, 403(b),TSP, 457 plan and/or IRA without paying IRS the extra 10% “early withdrawal penalty” because I am NOT age 59½ yet?”

It’s very easy to do. We have done it many times for our clients nationwide! The Internal Revenue Service (IRS) has a rule called 72t, “Substantially Equally Periodic Payments or (SEPP),” and when specific criteria are met by using the 72(t) rule, it eliminates the 10% early withdrawal penalty normally due for withdrawals from an individual retirement account, 401(k), TSP, 403(b), or 457 plan prior to age 59 ½.

How a 72t Works

Here’s how it works. Let’s say you are still working but want/need to retire (let’s say in this example) at the age of 54. First you quit working. Then you ROLL your 401k into an IRA. After completing the rollover, you apply for a 72(t) substantially equal periodic payments (SEPP). The IRS will offer you (3) optional payout methods. The (3) IRS payout methods will tell you how much the “substantially equal periodic payments” (SEPP) will be based on your age, the age of your beneficiary, the amount of money you have, the % rate used for the calculation and how long they expect you to live (based on the IRS mortality tables).

Here are the (3) methods that can be used to calculate your 72t income:

  • Minimum Distribution Method
  • Amortization Method
  • Annuitization Method

The 72(t) rule is, once completing a rollover and a 72t is setup to pay out an income stream, it must continue until the age of 59 ½ has been reached or for a minimum of 5 years, whichever comes last. For example, if you start a 72t at the age of 57, it must run until you are age 62, then it stops. If you are age 50, then it runs until you reach age 59 ½, then it stops.

After the 72t has stopped, then of course you can take out of your IRA any amount you might desire or require. We need to point out, just for clarification, that all the 72t income you receive is “income taxable” at your applicable ordinary income tax rate but without any added penalty.

72(t) Distribution Articles

January 03, 2023

What is the downside to borrowing against your 401k?

401k loans are a popular way for people to access funds quickly, but they come with a number of risks and drawbacks. In this blog post, we’ll discuss the potential …

December 02, 2022

Secrets to Early Withdrawals from 401K or TSP Penalty/Tax-Free | Early Retirement Hack

Retirement is something that all of us look forward to, but it can be difficult to know when and how to start planning for it. One of the most important …

November 22, 2022

What they aren’t telling you about your 401k

When it comes to retirement planning, having a 401k is one of the most important steps you can take. But, what they aren’t telling you about your 401k could be …

Early Retirement

October 12, 2022

Why can’t I withdraw from my 401k early?

When it comes to retirement planning, a 401k is one of the most popular and effective ways to save for the future. But what happens if you need to access …

September 14, 2022

How to Withdraw from Your 401K Early?

Retirement planning is a crucial part of financial planning. It’s important to make sure you have enough money saved up for your retirement years. One way to do this is …

72(t) professor hero banner

December 13, 2017

A True 72(t) Planning Pioneer

“Doc” Hall was the “go to” expert and offered his services to individuals nationwide in this specialized area known as SEPP or 72(t) planning

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

Completing your 72(t) early retirement distribution and documenting your IRS 72(t) 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 72(t) 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 72(t) distribution.

Not all (Financial Advisors, CPA’s, Attorney’s or otherwise) know about this little known IRS 72(t) rule. Also, NOT ALL companies know how to do a 72(t), 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.