IRS Rule 72(t) is a great retirement planning tool that can help you access your retirement funds early without incurring the 10% penalty. But before you can start taking advantage of this option, you need to know at what age you can begin. In this blog post, we’ll discuss the age requirements for starting a 72(t) and how it works.
What Is IRS Rule 72(t)?
IRS Rule 72(t) is an IRS-approved method of accessing your retirement funds early without incurring the 10% penalty. It allows you to withdraw money from your retirement account before reaching the age of 59 ½ and avoid the 10% penalty that would normally apply. This IRS Rule is also known as Substantially Equal Periodic Payments (SEPP).
How Does It Work?
IRS Rule 72(t) SEPP allows you to withdraw money from your retirement account over a period of time, usually 5 years or until you reach 59 ½, whichever comes last. The amount of money withdrawn must be equal each year and must be calculated using one of three approved methods: amortization, annuitization, or required minimum distributions (RMDs).
Age Requirements for Starting a 72(t) SEPP
In order to start a Series of Equal Periodic Payments (SEPP), you can be any age when you begin taking withdrawals from your retirement account. Keep in mind, IRS Rule72(t) requires you to commit to the income from your retirement account for a minimum of 5 years or until you are age 59½ whichever is longer. Therefore, if you are 48 when you start, you must take income for 11½ years. If you start at age 57 you must continue taking income until you are age 62.
Tax Implications of a 72(t)
It’s important to note that while the 10% penalty may not apply when using a 72(t), taxes will still need to be paid on any money withdrawn from your retirement account. It’s important to consult with an experienced financial advisor or tax professional before starting a 72(t) in order to understand all of the potential tax implications involved with this type of withdrawal strategy.
Conclusion
IRS rule72(t) SEPP is an excellent way to access your retirement funds early without incurring the 10% penalty that would normally apply. However, it’s important to understand that there are rules that still need to be followed and taxes will still need to be paid on any money withdrawn from your retirement account. If you’re considering using this option as part of your retirement planning strategy then it’s important to consult with an experienced financial advisor or tax professional in order to understand all of the potential implications involved with this type of withdrawal strategy.
Secret: Use a 72(t) friendly custodian who will properly code your penalty-free income each year.
