What is a "72(t)" Early IRA Distribution?

 Got a Question?     

I am often asked, “How can I retire early and take money out of my 401k, 403(b),TSA, 457 plan 

and/or IRA without paying IRS the extra 10% “early withdrawal penalty” because I am NOT

age 59 ½ yet?”

It’s very easy to do. I have done it MANY times! IRS has a rule called a 72T, “equally

substantial distribution”. By using IRS’s rule 72(t) it ELIMINATES the 10% early withdrawal penalty

normally due for withdrawals prior to age 59/12.  

Here’s how it works. Let’s say you are still working but want to retire (let’s say in this example)

at the age of 55.  First you quit working. Then you ROLL your 401k into an IRA. After the rollover is 

completed you apply for a 72(t) “equally substantial distribution”. 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).

Here is an example for you:

An individual age 55 (with the same age beneficiary) who has $250,000 and wants to set up a 72(t), 

(using a rate of 4.23% for example) this would be the payout options to choose from:

(NOTE: This information was provided by Prudential's customer service dept.)

The rule is, once a rollover is completed and a72(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.

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.

NOTE: The above calculations are based on the NEW IRS 72(t) rules, as established

by Congress, effective January 1st, 2003!

A word of CAUTION!

Do it right and it works beautifully. Do it wrong 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 PLUS, the IRS may assess the 10% penalty on all amounts withdrawn, if the IRA account 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 knows what they are doing! 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 

72(t) IRS 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. 

I can provide you examples of the few that will work effectively. Just ask and I can e-mail

that information to you.

I have effectively set-up 72t’s for income withdrawals prior to age 59 1/2 MANY TIMES 

throughout my 41 years and it works perfectly, if done correctly.  It is completely legal and 

ANYONE (at any age) can use a 72(t)! 

The most commonly used (effective) investment vehicles for a 72(t) 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 72(t). The reason being, as stated previously, that the amount desired to

be withdrawn from a 72(t) 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 72(t). Work with someone who is experienced and

knowledgeable in this very special area.

Would you like an ESTIMATE of what YOUR; 401k, 403(b), 457 plan or IRA might 

produce for an income, using a 72(t) for early withdrawals to eliminate the IRS penalty. 

Simply provide me: your age, your beneficiaries age, the amount of money in your retirement 

plan and I will prepare an income estimate for you. FREE! No obligation!

I mean it! Got a Question?

Click on the following LINK to see how a Fixed annuity can be properly used to provide 

an income using the new 72(t) rules.

Using a FIXED IRA for 72(t) strategy

to "retire early" before age 59 1/2!

Afraid of running out of money?

Then read the article on

"Split-Annuities"

This early withdrawal system also works for non-IRA annuities as well, to eliminate the IRS 10% 

early withdrawal penalty on non-qualified money in any annuity. It’s called a 72(q) for non-qualified 

annuities but works the same as a 72(t) for IRA's. Got a Question?    

NOTE: Investment return and principal value will fluctuate, and shares, 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. 

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