72(t) Articles

Q & A: Creative Planning Using 72(t)?

Q: Can I work or receive other income while using a 72(t) exemption?

A: Yes. With a 72(t) distribution, the IRS is only concerned with the account sending the payments, so your employment status and other income is irrelevant. This option is made available to everyone with applicable retirement assets, which is why this concept is so intriguing in our business, and frankly something we are very excited to discuss with people.

If you are fired, laid off, decide to quit your job, or forced to stop working due to a medical condition, this exception can bridge the gap and give you a head start on your retirement, and gives you the ability to continue to pay your bills and maintain your lifestyle. Or maybe you’re still working and could use some additional cash flow, or you feel that it’s now time to start spending your hard-earned retirement savings for whatever reason you desire. You can start this stream of income with no penalties or hassle with the IRS, assuming you structure the distributions properly.

Q: Is it possible to use the 72(t) exemption rule if you only want to withdraw a small amount of money from your retirement account (not the entire balance as the rule states)?

Although the 72(t) rule does indeed state that you must take the equal periodic payments in such a way that the ENTIRE retirement account balance is depleted over your remaining life, there is a solution to get around this. You can open multiple retirement accounts and can choose to only apply the 72(t) distributions to just one of your retirement accounts (not all of them). This can be a complex process. We have a highly trained and experienced staff to assist and oversee that this is done in the proper manner. A mistake here could be VERY costly.

If you would like help properly structuring your early retirement, please contact us today.