Reg 72(t): Access Your IRA without the Penalty

***The below discussion on Reg 72(t) is not all encompassing and not intended to be advice.  Your particular situation plays a major role in whether doing a 72(t) distribution is appropriate for you.  It also takes a lot of strict financial discipline.  Not too many professionals are able to properly help with 72(t) distributions.  Feel free to look under my “Services” tab for info on my assistance with 72(t) distributions***

Oh 72(t), I do love you.  But why?

Well, if you are an early retiree or aspiring early retiree, you’re going to want to know about this Internal Revenue Code.


First off, let me get this out of the way:  THERE ARE NOT A LOT OF CFPs AND CPAs THAT FULLY GRASP 72(t) distributions.  Even calling the IRS will not be too helpful.  If working with an advisor, you better make sure they really understand the INs and OUTs, otherwise YOU are stuck with the penalties and interest when something goes wrong.  Many advisors will say they know what 72(t) is, but that is just so they can sell you some product.  I know because I used to work with all of the above.  As I got closer to retirement, I actually stopped helping customers on 72(t) distributions, because the company I worked for did not allow me to charge a fee.  I was the only person in the building that knew this stuff.  The the laws of supply and demand said I should be charging because of this(I also mentally checked out).  So, yes, the people that do know 72(t) tend to charge a flat fee, as opposed to putting you in a product that has ongoing fees.  I am not affiliated with any broker dealer or RIA anymore.

So what’s the big freakin’ deal about Reg 72(t) distributions and why isn’t anyone ever talking about it?  For anyone doing a withdrawal from a Traditional IRA prior to age 59.5 years of age, you will be faced with ordinary income taxes on the amount withdrawn for the year, but also a 10% early distribution penalty (unless you qualify for an exception-most are tied to bad things happening to you though).  Pretty steep penalty to access your money early.  Reg 72(t) doesn’t get talked about much, because it honestly isn’t very well understood or even know about by many investors or professionals.

So the big deal? Reg 72(t) allows for someone to take distributions from their IRA (following certain rules)and avoid having to pay the 10% penalty (you still have to pay ordinary income taxes on the withdrawal-no work around there).   The distributions have to be “part of a series of substantially equal periodic payments” (you may see SEPP used-not to be confused with SEP IRA) made at least annually for the life expectancy of the individual (or joint life if applicable).  72(t) distributions must continue for the greater of either 5 years or attaining age 59.5.  Any misstep or wrong calculation can subject ALL years of distributions t0 be penalized at 10% plus interest owed to the IRS (now you see why it’s important to work with someone that actually knows this stuff).

There are 3 methods to determine SEPP:

Life Expectancy Method– basically using the minimum distribution rules, but before age 70.5, distribution amounts change annually

Amortization Method– Amortize account balance using a life expectancy and a reasonable interest rate (reasonable interest rate is defined by the IRS as not more than the 120% Federal Mid Term Rate for either of the 2 months prior to the first distribution), distributions stay the same

Annuitization Method– account balance divided by a life expectancy factor and interest rate, distribution amount stays the same

So basically, 72(t) allows for an early retiree to access their IRA prior to age 59.5 and avoid the 10% penalty tax.  For early retirees this is huge.  For most normal people, their biggest “asset” is their house, followed by their 401(k), then everything else.  For someone retiring at say age 36 (that age sounds familiar), you would be able to rollover your 401(k) to a traditional ira, establish your 72(t) distributions on that IRA, use your dividends from your brokerage account, and enjoy retirement.  If 72(t) didn’t exist, you would have to have a bunch of money built up in individual accounts to retire early and you would have to wait until age 59.5 to touch your IRA.  No beuno.

I’ve seen a lot of pf bloggers talk about doing conversions on some Traditional IRA money to a ROTH IRA every year to access money.  There is a rolling 5 year rule attached to these conversions and you can’t touch the growth before 59.5.  Also, if you are converting traditional to roth for 20+ something years, you better keep very good records.  Since you would have to wait initially 5 years before touching the roth conversion ladder, you better hope the markets cooperate.    You could be drawing your most liquid assets in a taxable account and forfeiting future flexibility.  People always assume the market only goes up and forget what a bear market can do to a portfolio.  I was going to write a post about paying practically no taxes in early retirement, but this guy beat me to it (show him some love and click a few ads).  Most extremely early retirees live modest lifestyles and pay low taxes already, so why complicate things with ongoing roth conversions (who’s to say the government won’t change their tax stance on ROTH IRA either.  They’re looking to add an RMD to them next year.  In 2015, President Obama opened up the thought of taxing 529 plans.  Though that idea was later tossed because of backlash, it still shows the government is looking at any ways to increase tax revenues).

Like most things in life, there are pros and cons to 72(t) distributions:


-Access to your IRA prior to age 59.5 so you can retire early without the 10% penalty

-The actual calculations are not that complicated

-You can divide your IRA into multiple IRA accounts, and do a 72(t) on just one of the balances (if you are looking to receive a particular dollar amount).  This gives some flexibility for longer term planning taking into consideration COLA

-You have a one time chance to change from Amortization/Annuitization Methods over to the Life expectancy method (good because as your IRA balance grows over time, you can basically recalculate your 72(t) payment going forward)


-If you screw something up on your withdrawals, the penalty can be substantial (referred to as busting the plan)

-Takes solid financial dedication to execute (this plan is not for spend thrifts).  It’s kinda like poker “minutes to learn, a life time to master”

-Depending on your lifestyle, may not provide enough income to live off (you would want brokerage investments  or side hustle for added income and flexibility)

-No flexibility of distributions (hence Equal Periodic Payment)

A side note:  72(t) does not apply to a 401(k) plan.  In fact if you are 55 years or older and separated from service, you will want to check with your 401(k) plan provider about penalty free distributions without the hoops to jump through of a 72(t).  This demographic is probably the last group that should look at a rollover and 72(t) distribution.  However advisors do it for the commission.

Another note: There is also a funny provision.  If your SEPP IRA runs out of money, say an investment went south, this is not considered a modification to that plan and does not bust the plan, so no 10% penalty tax is assessed.

Last note: (mentioned above) You can do a one time change from Amortization or Annuitization method over to the Life Expectancy method.

So there goes a brief rundown on 72(t) distributions, a topic that is little known in the personal finance blogging world, but also the investment world.  With proper planning, Reg 72(t) can be your best friend in early retirement.  Again, this is not all encompassing.  If you need detailed help and numbers crunched, contact me.

I should have something posting soon about my withdrawal strategy in early retirement coming soon.  As a preview, it includes doing  a conservative 72(t) distribution strategy and living off my qualified dividends.  At the same time, I will be paying practically no taxes and still saving some of the excess withdrawals for a rainy day/inflation.

Sound off below:  Have you ever heard of Reg 72(t) before?  Have you given thought to your early retirement withdrawal strategy?


Follow me on the social medias:

Readers Comments (44)

  1. I love it when individuals get together and share opinions.
    Great website, keep it up!

    • Thanks Bill. You can learn a lot from reading PF/FI blogs that are out there. I’d even say, in a lot of cases, you can learn more from the FI community than the pros.

  2. I’ll right away clutch your rss feed as I can not find your e-mail subscription hyperlink or newsletter service.

    Do you’ve any? Please allow me recognise in order that I may just subscribe.


    • Hi, I don’t have a newsletter. Feel free to follow me on twitter @bamfmoney for the latest articles.
      Thanks for checking out my site.

  3. I’m gone to inform my little brother, that he should also pay a quick visit this webpage on regular
    basis to get updated from most up-to-date news.

  4. I’m not certain the place you are getting your information, however good topic.
    I must spend a while learning much more or figuring out more.
    Thank you for fantastic info I was in search of this information for my mission.

  5. This website was… how do I say it? Relevant!!
    Finally I have found something which helped me.


  6. Its like you read my mind! You appear to know so much about this, like you wrote the book in it
    or something. I think that you can do with a few pics to drive the
    message home a little bit, but other than that, this is magnificent blog.
    A fantastic read. I’ll definitely be back.

  7. Excellent article. I certainly love this site.

  8. Hello there! I know this is somewhat off topic but I was wondering if you knew where I could locate a captcha plugin for my comment form?
    I’m using the same blog platform as yours and I’m having problems
    finding one? Thanks a lot!

  9. With havin so much content and articles do you ever run into any issues of
    plagorism or copyright violation? My site has a lot of exclusive content I’ve either written myself or outsourced but it looks like a lot of it is popping it up all over the
    web without my authorization. Do you know any techniques to help prevent content from being
    stolen? I’d certainly appreciate it.

    • Hi M88,
      I don’t really know if any of my stuff is being copied. I don’t think about it or lose it.
      Imitation is the highest form or flattery… is what I think about it.

  10. Good post however I was wondering if you could write a litte more on this subject?
    I’d be very grateful if you could elaborate a little bit more.

    • Anything in particular you have a question on 72(t)? There is almost too much to write on this topic and each persons situation will be a little different

  11. I was very pleased to find this website. I want to to thank you for ones time for this fantastic read!!

    I definitely really liked every bit of it and i also have
    you bookmarked to check out new stuff on your site.

  12. Hi! I’m at work surfing around your blog from my new apple
    iphone! Just wanted to say I love reading your blog and look forward to all your posts!
    Keep up the superb work!

  13. This is a topic that’s near to my heart…
    Many thanks! Exactly where are your contact details though?

    • Look at the top and over to the right. If you need help with a 72(t), check out my services tab as well.
      Thanks for dropping by.

  14. I’d like to find out more? I’d care to find out
    some additional information.

    • Hi Lauran,
      Feel free to use the “contact me” tab at the top to send me details of your situation. Also, check out the “Services” tab for information on help with 72(t) distributions.
      Thanks for dropping by.

  15. Greetings! This is my first visit to your site! We are a team of volunteers and starting a
    fresh project inside a community in the same
    niche. Your blog site provided us beneficial information to be effective
    on. You may have done a outstanding job!

  16. I do believe all of the concepts you’ve
    presented in your post. They’re really convincing and
    may definitely work. Still, the posts are too
    short for novices. Could you please prolong them just a little from next time?
    Thanks for the post.

  17. Way cool! Some very valid points! I appreciate you scripting this write-up along with the remaining portion of
    the website is really good.

  18. An impressive share! I have just forwarded this onto a
    colleague who has been conducting a little homework on this.
    And he in fact ordered me lunch simply because I
    stumbled upon it for him… lol. So let me reword this….
    Thanks for the meal!! But yeah, thanx for spending time to talk about
    this matter here on your web site.

    • Glad I can help get you a free meal. If your friend needs additional help in calculating their 72(t) payments, have them contact me

  19. Have you ever considered about adding a little bit more than just your articles?
    I mean, what you say is valuable and all.
    However think about if you added some great images or video clips to give your
    posts more, “pop”! Your content is excellent but with pics and video clips, this
    website could undeniably be one of the best in its niche. Wonderful blog!

    • Thanks for the feedback. Yes, within the last few weeks I have started incorporating more pics and videos into the post to change up the look.

  20. Awsome article and right to the point.

  21. Useful information. Lucky me I found your site by chance, and
    I am surprised why this accident did not took place earlier!
    I bookmarked it.

  22. Please lеt me know if you’re looқing for a article author
    for your site. You have some really ɡreat articles and I feel I wouⅼd be a good asset.
    If you evеr ᴡant to taкe sοme of thе load off, I’d
    love to write some mаterial for your blog in exchange for a link bɑck
    to mine. Please bⅼast me an e-maіl if interested. Many thanks!

  23. I do not even know how I ended up here, but I thought this post was great.
    I don’t know who you are but certainly you are going to a
    famous blogger if you aren’t already 😉 Cheers!

  24. Okay, I just read this article and learned that a 729t) is not applicable to a 401(k). Thank you for this confirmation! We have about 2/3 of our money in 2 401(k) and the balance in IRAs. It it legal to do a Rule of 55 withdrawal from the 401(k)s and a 72(t) rollover from the IRAs? Or, might we be better off in the long run to eventually roll the 401(k)s over to and IRA? Or perhaps we are better off to each have 1 rollover IRA at a place like Schwab or Vanguard and take these distributions from the one place? I’d love to speak with you.

  25. Great post.

  26. A soon-to-be 72t-er May 8, 2019 @ 6:24 am

    Every article I read about 72t distributions tell me that it should be EXACT and to the penny to avoid possible IRS issues. But every on-line calculator seems to round distributions to the nearest dollar. What gives? Is there a calculator that is correct to the penny, or like when doing taxes, is the nearest dollar okay with the IRS? Thanks in advance!

    • most online calculators I’ve looked at drop off the pennies. Probably something with how they’ve built their calculators and causing it to round up or down. You would want to have it exactly down to the penny to be correct and also document your calculation in case of an audit.

      • A SOON-TO-BE 72T-ER June 18, 2019 @ 10:28 am

        Since these calculators are wrong, where can I find the right math to use? Say I have $5000,000 and want to begin distributions at 55, what would I divide $500K by to get the correct annual number based upon the interest rate I elected. Do you have a chart that we can keep handy??

        • you have to use an appropriate 120 mid term rate, not just any number. Pub 590 has the appropriate life expectancy numbers. The formula used depends on the method you are using to calculate your distribution.

  27. como se llama el generico de levitra levitra online usa pharmacy levitra medicare

  28. Write my paper for me cheap someone write
    my paper for me

Leave a comment

Your email address will not be published.


Follow me on the social medias: