72t Calculator

Shawn Plummer

CEO, The Annuity Expert

Do you want to retire early? First, you’ll need to understand the 72t rule. This special provision in the IRS tax code allows you to withdraw money from your qualified retirement account without penalty before you reach age 59-1/2. Our free online 72t calculator can help you determine how much money you can withdraw each year without penalty. Enter your age, retirement account balance, and expected annual rate of return, and our calculator will do the rest!

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72t Calculator

The Internal Revenue Code section 72t permits you to withdraw funds from qualified retirement accounts without incurring the 10% premature distribution penalty in certain situations. Use our 72t calculator to find your distribution under Section 72t, enabling you to begin your early retirement journey with no penalties!

72T Rules

What Is A 72t Distribution?

A 72t distribution, also known as a 72(t) rule or substantially equal periodic payments (SEPP), is a way of taking early retirement distributions from a tax-deferred qualified retirement account without being penalized by the Internal Revenue Service (IRS).

The 72(t) rule allows individuals to withdraw a specified, fixed amount from their qualified retirement account over a set period, based on their life expectancy, without incurring an early withdrawal penalty.

This distribution is often used as an alternative to a lump-sum distribution or waiting until age 59 1/2 to start taking retirement distributions.

72T Rule

How Do 72(t) Withdrawals Work?

72(t) withdrawals work as follows:

  • The individual must choose a specific distribution schedule and stick to it for at least five years or until they reach age 59 1/2, whichever is longer.
  • The amount of the distributions must be based on the individual’s life expectancy as determined by IRS tables.
  • The distribution amount must remain fixed, with no significant changes allowed, throughout the distribution period.
  • Suppose the individual deviates from the predetermined schedule. In that case, they will incur a 10% early withdrawal penalty on the entire withdrawal, and any earned income on the withdrawal amount will be subject to income taxes.
  • The 72(t) distribution is not a one-time event and must continue for the entire distribution period, as determined by the IRS.
  • It’s essential to consult with a financial advisor or tax professional to ensure that a 72(t) distribution is appropriate for your financial situation and to calculate the correct distribution amount.

What Are The Rules For 72(t) Distributions?

The rules for 72t distributions include:

  • The distribution must start within the tax year in which the individual reaches age 59 1/2 or the year in which they retire, whichever is later.
  • The distribution must continue for at least five years or until the individual reaches age 59 1/2, whichever is longer.
  • The distribution amount must be based on the individual’s life expectancy and calculated using IRS-approved methods.
  • The distribution amount must be fixed and cannot be altered significantly during the distribution period.
  • The individual must receive distributions in substantially equal payments over the distribution period.
  • Suppose the individual deviates from the predetermined schedule. In that case, they will incur a 10% early withdrawal penalty on the entire withdrawal, and any earned income on the withdrawal amount will be subject to income taxes.
  • The individual must continue receiving distributions for the entire period determined by the IRS.
  • Distributions cannot be rolled over into another qualified retirement account until the period is completed.
  • Consultation with a financial advisor or tax professional is recommended before starting a 72(t) distribution.
Can You Work While Taking A 72T Distribution

How Do You Calculate A 72(t) Payment?

In addition to our 72t calculator, to calculate a 72(t) payment, the following steps can be taken:

  • First, determine the present value of the qualified retirement account, including any contributions made since the most recent valuation.
  • Use IRS-approved methods to calculate the individual’s life expectancy, which will be used to determine the distribution period.
  • Divide the present value of the account by the life expectancy to determine the annual distribution amount.
  • Divide the annual distribution amount by the frequency of payments (e.g., monthly, quarterly, etc.) to determine the payment amount for each period.
  • Re-calculate the distribution amount annually using the updated present value of the account and life expectancy.
  • It’s essential to consult with a financial advisor or tax professional to ensure the calculations are accurate and comply with all 72(t) rules and regulations.
72T Calculator

How To Turn Your 72(t) Withdrawals Into Lifetime Income

Annuities are a retirement plan like no other. While other traditional plans offer some guaranteed income, annuities can provide a fixed retirement income that you and your family can rely on for life. If you want to switch to an annuity, it’s a simple process – roll the money over from your current plan with no tax consequences, and you’re good to go! An annuity with a lifetime withdrawal benefit is the only plan that guarantees lifelong financial security in retirement, and taking advantage of it is easy; why wait another day?

Next Steps

If you want to retire early, the 72(t) rule can help you withdraw money from your qualified retirement account without penalty. You can use our free online 72t calculator to determine how much money you can withdraw each year without penalty. Then, see how much guaranteed lifetime income you can receive from an annuity. Contact us for a quote, and we’ll help you plan your retirement.

72T Calculator For Early Retirement

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Frequently Asked Questions

What happens with a 72t after five years?

After five years, 72t distributions can be discontinued if the individual is 59 1/2 or older. If distributions are discontinued or altered before turning 59 1/2, a 10% penalty will incur, and income taxes on any earned income will be applied.

Can I stop 72t after five years?

Yes, you can stop 72(t) after five years if the individual has turned age 59 1/2 or older. If not, there may be consequences, such as a 10% early withdrawal penalty and income taxes on any earned income.

Can you do a 72t while working?

Yes, you can do a 72(t) while working. However, it’s important to note that the 72(t) rules still apply, and distributions must be taken in substantially equal payments over a set period.

Is the Rule of 55 the same as 72t?

No, the Rule of 55 and 72(t) is different. For example, the Rule of 55 allows for penalty-free withdrawals from a 401k at age 55 if the individual leaves their employer. In contrast, 72(t) allows for early distributions from a tax-deferred qualified retirement account without penalty based on life expectancy and fixed payments over a set period.

What are the exceptions to Rule 72t?

Exceptions to Rule 72(t) include death, disability, and qualified medical expenses. Early distributions can be taken without incurring a 10% penalty in these cases, but earned income may still be subject to income taxes.

Is 72t a good idea?

Whether 72(t) is a good idea depends on the individual’s financial situation and goals. It allows for early distributions from a tax-deferred qualified retirement account without penalty. Still, distributions must be taken in substantially equal payments over a set period, and there may be consequences if the rules are not followed.

What is the downside of 72t?

The downsides of 72(t) include having to take distributions in substantially equal payments over a set period, potential loss of investment growth if distributions are taken too soon, and consequences if the rules are not followed, such as a 10% early withdrawal penalty and earned income subject to income taxes.

Do you pay taxes on 72t?

Yes, 72(t) distributions are subject to income taxes as earned income.

How long does a 72t last?

To be eligible for a 72(t) distribution, the payouts must continue to be made to individuals until they reach age 59 1/2 or span over a minimum period of five years, whichever is longer.

Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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