After recently writing about the IRS 72(t) rules, we are also often asked “Is there a 72(t) exception” to IRS rule 72(t) for early retirement income. Most retirement plan distributions are subject to income tax and may be subject to an additional 10% tax (and additional penalties).
Estimate your 401k, TSP, 403(b), 457 plan or IRA might produce for an income, using a 72(t) for early withdrawals to eliminate the IRS penalty.
The IRS 72(t) tax code section covers withdrawals from retirement accounts, i.e., 401(k), 403(b), qualified annuities, pensions & IRA retirement funds.
There are several ways you can “bust” your 72(t) distributions, and the consequences can have a severe impact on your taxes if not managed.
By taking income through a 72t early distribution plan, you are not avoiding income tax all together, but you are avoiding the 10% early withdrawal penalty tax, which in many cases can be a very significant tax break.