What is the 72(t) IRS Code?
What is 72(t)?
72(t) is the Internal Revenue Code Section that covers withdrawals from retirement accounts such as 401(k) and 403(b), including qualified annuities, pensions, individual retirement accounts (IRA), or any other tax-deferred retirement savings vehicle. The age at which you can start taking withdrawals from a retirement account without penalty is 59½. If withdrawals are taken before age 59½ then there is a 10% penalty tax assessed. However, 72(t) lists some exceptions to this rule where you can access your retirement dollars prior to age 59½ without paying the 10% penalty tax.
Some of these exceptions include (but are not limited to): distributions taken for first-time home buyers, higher education expenses, medical expenses, separation of service, IRS levies, and establishing a Series of Substantially Equal Payments (SEPP).
These discussions will primarily focus on the last of those options: establishing a Series of Substantially Equal Payments (SEPP). This is the most frequently utilized exception, and for simplicity sake, this is the exception that we will be referring to when we use the terminology “72(t) distribution.”
To find out more about properly structuring a 72(t) distribution, please provide us with some details.