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After recently writing about the 72(t) rules, we are also often asked “Is there a 72(t)  exception” to the IRS rule 72(t) for early retirement income. Most retirement plan distributions are subject to income tax and may be subject to an additional 10% tax (and additional penalties).

Generally, the amount of money an individual takes out of an IRA or Retirement Plan prior to age 59 is called an “early” (or “premature”) distribution. Individuals must pay an additional 10% early withdrawal tax unless an exception applies.

There are exceptions in the IRS code that allow an early or premature withdrawal from your IRA or 401(k) plan without the 10% penalty being assessed. The section of the Internal Revenue Service code that addressed these exceptions is called Section 72(t) and there are subsections of 72(t) that have specific circumstances that must be met in order to provide exception to the 10% early withdrawal penalty tax

The following list outlines reasons for a 72(t) exception to the 10% early withdrawal tax documented by the IRS:

1. Age 59 or older

2. Death

3. Disability

4. Substantially Equal Periodic Payments (SEPP)

5. Separation of service on or after age 55 (401(k) only)

6. Medical expenses

7. Qualified Domestic Relations Order Divorce

8. Health Insurance Premium (IRA, not 401(k)

9. Higher Education Expenses (IRA, not 401(k))

10. First Time Home Purchase (IRA, not 401(k) subject to limitations)

Please note in some cases there is an exception allowing for penalty free withdrawal from your 401(k) at or after age 55 and after age 50 in even more limited cases. Please consult with a tax professional to get more detailed information on each of these exceptions. It is important that you get advice before you make a decision regarding this specialized area of financial planning. The IRS is unforgiving and the penalties for mistakes are significant.

Again, please make sure you get competent advice from a firm that specializes in this area of financial planning

Stuart Spivak, LUTCF, RFC is Senior Partner at The Spivak Financial Group and Founder of 72(t) Professor. Stuart can be reached at (888) 4-SPIVAK (888) 477-4825 or (844) PROF-72T (844) 776 3728 or

What is a 72t?

72t is the Internal Revenue Code Section that covers withdrawals from retirement accounts, such as; 401k’s, 403(b)’s including Qualified Annuities, Pensions, Individual Retirement Accounts (IRA’s), or any other tax deferred retirement savings vehicles. The age at which you can start taking withdrawals from a retirement account without penalty is 591/2. If withdrawals are taken before age 591/2 then there is a 10% penalty tax assessed. However, 72(t) lists some exceptions to this rule where you can access your retirement dollars prior to age 591/2 without paying the 10% penalty tax.

Some of these exceptions include (but are not limited to): Distributions taken for first time home buyers higher education expenses medical expenses separation of service IRS levies establishing a Series of Substantially Equal Payments

These discussions will primarily focus on the last of those options: establishing a series of substantially equal payments (SEPP). This is the most frequently utilized exception, and for simplicity sake, this is the exception that we will be referring to when we use the term “72(t) distribution”.

The following list outlines reasons for a 72t exception on an early distribution documented by the IRS.

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A 72(t) early distribution will NOT be subject to the 10% additional early withdrawal tax in the following circumstances:

Age: after participant/IRA owner reaches age 59½

Automatic Enrollment: permissive withdrawals from a plan with auto enrollment features

Corrective Distributions: corrective distributions (and associated earnings) of excess contributions, excess aggregate contributions and excess deferrals, made timely.

Death: after death of the participant/IRA owner

Disability: total and permanent disability of the participant/IRA owner

Domestic Relations: to an alternate payee under a Qualified Domestic Relations Order

Education: qualified higher education expenses

Equal Payments: series of substantially equal payments

ESOP: dividend pass through from an ESOP

Homebuyers: qualified first-time homebuyers, up to $10,000

Levy: because of an IRS levy of the plan

Medical: amount of reimbursed medical expenses (>7.5% AGI; after 2012, 10% if under age 65), or health insurance premiums paid while unemployed.

Military: certain distributions to qualified military reservists called to active duty

Returned IRA Contributions: if withdrawn by extended due date of return, or earnings on these returned contributions

Rollovers: in-plan Roth rollovers or eligible distributions contributed to another retirement plan or IRA within 60 days (also see FAQs: Waivers of the 60-Day Rollover Requirement)

Separation from Service: the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit plan)

If you would like help properly structuring your 72t early distribution, please contact us today.