Rule 72(t) – Retire Early Penalty Free!!!

Many individuals feel the 401K is less desirable because they want to retire early and don’t want to postpone their investing gratification until they are 59 1/2.  That is the age that you can withdrawal funds from your 401K without a 10% penalty from the government.  If you have enough money in your 401K to retire at age 45, why can’t you?  Well, you can!!!

Rule 72(t) of the tax code the “equally substantial distribution” eliminates the early withdrawal penalty if done properly!

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How It Works

  1. Quit working.
  2. ROLL your 401k into an IRA.
  3. Apply for a 72(t) “equally substantial distribution”.
  4. The IRS will offer you (3) optional payout amounts. The (3) IRS optional payout methods will tell you how much the “equally substantial distribution” 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 IRS’s mortality table).
  5. The rule is, once a rollover is completed and a 72(t) 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 72(t) 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.
  6. After the 72(t) has stopped, then of course you can take out of your IRA any amount you might desire or require.

***I need to point out, just for clarification, that YES all the income you receive is fully “income taxable” at your applicable income tax rate but without any added penalty.

Please contact Dollars & Sense Education to bring our seminars to your company or organization!

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Dollars & Sense Education – Raising Your Financial IQ!
www.daseducation.com
nicole@daseducation.com
215-499-3834

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4 Responses to “Rule 72(t) – Retire Early Penalty Free!!!”

  1. Sally Says:

    Say I have a Simple IRA and a Roth IRA. Does this rule work for those types of IRA as well?

  2. Gail Smith Says:

    If I place my Ira into a IImmediate income annuity< I am 56 yrs old, will this satisfy the rule. 72T

  3. Nicole McInerney Says:

    Gail,

    To be honest, I don’t know. I would contact a trusted financial advisor for that advice.


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