72(t) Articles
Can You Work While Taking a 72(t) Distribution?
If you are nearing retirement age and looking for ways to access your retirement savings without penalty, you may have heard of the 72(t) distribution. This is a strategy that allows you to access your retirement funds early, without incurring the 10% early withdrawal penalty. However, it is important to understand the rules and regulations surrounding this strategy before you decide to take advantage of it. In this blog post, we will discuss whether or not you can work while taking a 72(t) distribution.
What is a 72(t) Distribution?
A 72(t) distribution is an IRS-approved way to access your retirement funds early without incurring the 10% early withdrawal penalty. This strategy involves taking substantially equal periodic payments (SEPPs) from your IRA or other qualified retirement plan over a period of five years or until you reach age 59 ½, whichever comes last. The payments must be made at least once per year and must be calculated using one of three approved methods: required minimum distribution (RMD), fixed amortization, or fixed annuitization.
Tax Implications of a 72(t) Distribution
When taking a 72(t) distribution, it is important to understand the tax implications. The payments are considered taxable income and are subject to federal income tax as well as any applicable state taxes. Additionally, if you are under age 59 ½ when taking the distributions, they may also be subject to an additional 10% early withdrawal penalty tax unless an exception applies.
Can You Work While Taking a 72(t) Distribution?
The short answer is yes – you can work while taking a 72(t) distribution. It is important to understand that you cannot make contributions to the IRA that is paying out income under IRS Rule 72(t) SEPP.
Conclusion
Taking advantage of the 72(t) distribution strategy can be an excellent way to access your retirement funds early without incurring the 10% early withdrawal penalty tax. However, it is important to understand all of the rules and regulations surrounding this strategy before deciding whether or not it is right for you. Seek professional advice from a competent professional who understands all of the rules and regulations.