Understanding Rule 72t

Understanding the 72(t) Substantially Equal Payments Framework

Rule 72t is about the IRC Section 72t allowing IRA early withdrawal of substantially equal periodic payments. This systematic IRA early withdrawl allowed by Section 72t of the Internal Revenue Code is referred to as 72t or 72t distributions.

Rule 72t is about substantially equal payments

As previously mentioned, a 72t early retirement is about taking many 72t distributions of substantially equal payments. A 72t early retirement distribution must be structured properly in order to avoid the premature IRA early distribution penalty tax. A 72t early withdrawal is more complicated than a normal IRA early withdrawal or a 401k early withdrawal so be careful when enrolled into a 72t distribution schedule.

The following questions and answers offer a brief overview of the 72 t rules:

Who is eligible to take 72t distributions, under the Rule 72t?

Rule 72t permits any IRA owner can take 72t distributions at any time, for any reason.

However, the point of this 72t early retirement distribution strategy is to avoid having to pay a 10% premature IRA early distribution penalty, so it is only useful to those under the age of 59½.

Remember, if you are already 59½ the Rule 72t and 72t distribution do not apply to you.

When can I take a 72t distribution from my IRA, under the Rule 72t?

Rule 72t allows you to begin at any age under 59½.

However, you must set up a schedule of substantially equal payments that is satisfied annually to avoid violations of Rule 72t. If you violate Rule 72t, you will be faced with taxes and penalties of IRA early withdrawals.

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