72(t) Rules

72(t) Rules

If you have an IRA and are under age 59½ but want to take distributions from your IRA, one exception to the 10% penalty for early IRA withdrawals is found in the Internal Revenue Code under I.R.C. 72(t). This section of the code permits an IRA owner to set up substantially equal periodic payments (SEPPs) from his/her IRA.

Here are some of the basics:

Most Modifications are Prohibited and a modification will trigger penalties that apply retroactively PLUS interest to all distributions made before age 59½! No contributions or other additional withdrawals are permitted – the balance may only change due to earnings and losses credited to the account.

Any Change in Your Financial Need is irrelevant – you must continue with 72(t) distributions even if you no longer need the money! Also, any unneeded distributions cannot be rolled into another IRA or converted to a Roth IRA.

A FULL 5 Year Minimum SEPP Commitment is required under a 72(t) payment plan. You must wait until the longer of the end of that 5th year or when the owner turns 59½ to make any modifications to the IRA, i.e., contributions, additional distributions.

*TIP: Segregate the IRA Funds to avoid triggering a modification if you are using the balance of more than one IRA for establishing a plan and calculating the payments.

*CAUTION: Once committed, you are basically stuck with it – the rules are very restrictive so be sure there are no other options available before you decide to choose a 72(t) distribution plan. Your retirement distribution expert can answer any questions you may have about 72(t) distributions.

Source: www.irs.gov


More Updates


For trusts that inherited an IRA in 2019, an important deadline is approaching. The due date to provide required trust documentation to the IRA custodian to ensure that the longest payout period possible is available for the inherited IRA is October 31, 2020. Generally, only individuals who are named on an IRA beneficiary form can

Read More »


The coronavirus-related distribution (CRD) rules for Roth conversions have a gaping hole. An “affected person” (as we have defined in previous blogs), is entitled under the CARES Act to withdraw up to $100,000 from their IRA or workplace retirement plan. A CRD avoids the 10% early distribution penalty for those under 59 1/2, can be

Read More »

Rolling Over an RMD

Like most people’s lives, the retirement world is upside down. This is made evident by a single statement: “Required minimum distributions (RMDs) can be rolled over.” Yes, that is the new normal—at least for this year. RMDs are considered the first money out of an IRA and workplace plan. Typically, these dollars are ineligible to

Read More »
Scroll to Top