How much can I withdraw under Rule 72t?

The question of how much one can withdraw under Rule 72t IRA early withdrawal often comes up. Many people think there is an upper limit like most IRA rules that apply to Rule 72t distribtution. The truth is the amount you are allowed as IRA early withdrawal under the 72t is more complicated. Also, you cannot pick the IRA early withdrawal amount under the Rule 72t.

How much can I withdraw early under Rule 72 t?

Under the 72t distribution rules, you can’t just pick an amount of money you would like to take out of your IRA each year.

Rather, you must use an approved method to calculate a stream of “substantially equal payments” to take place over the payment period. This is sometimes referred to as a 72t retirement calculator or 72 t calculator.

The Internal Revenue Service (IRS) has approved three methods of calculating the amount of these 72t distributions, under Rule 72t. You can read more about how to calculate these IRA early withdrawl amount in later sections of this Early Withdrawl website.

72t Required Minimum Distribution (RMD) method:

Under this Required Minimum Distribution (RMD) method, you simply divide your IRA balance for that year by the “life expectancy factor” found in an IRS Life Expectancy table, just as you would calculate your Required Minimum Distribution (RMD) beginning at age 70½.

Under this Required Minimum Distribution (RMD) method you recalculate:

• your account balance,
• life expectancy and
• the resulting payment amount each year.

You may use any one of the three life expectancy tables found in the Supplement to IRS Publication 590,

• the Uniform Table,
• Single Life Table or
• Joint Life Table (with your eldest beneficiary).

Your account balance for the purpose of this 72t Required Minimum Distribution (RMD) method is determined as of December 31 of the prior year or a date reasonably close to the payment beginning or anniversary date (e.g., if your payment year runs from July 14, 2002 to July 13, 2003 you may use the June 30 account balance).

Unlike RMDs at age 70½ you may not take more than the minimum amount.

72t amortization method

This 72t amortization method, based on a system commonly used in many mortgage repayment schedules. The 72t amortization method relies on:

• your life expectancy (determined using one of three tables in the IRS Publication 590-Supplement) and
• an interest rate that may not exceed 120% of the Federal mid-term rate for either of the two months immediately preceding the month in which payments begin.

Distributions, under this 72t amortization method, are then calculated as a stream of equal payments that will bring your account balance to zero at the end of the life-expectancy period. The annual 72t amortization method payment is calculated only once and used every year until 72(t) payments end.

72t Annuitization method

The annual 72t distribution payment amount is determined by dividing the IRA balance by an annuity factor that is the present value of an annuity of $1 per year beginning at the IRA owner’s current age and continuing for life using the current account balance, the Mortality Table in Appendix B of Revenue Ruling 2002-62 and the interest rate described above for the amortization method. This amount is also calculated only once.