72(t) Articles

What are the Rules for a 72(t) Distribution?


As you plan for your retirement, you may be considering ways to access your retirement funds early without incurring penalties. One option is the  IRS Rule 72(t) SEPP distribution, which allows you to withdraw funds from your IRA or other qualified retirement plans before the age of 59½ without facing the typical 10% early withdrawal penalty. However, there are specific rules and guidelines that must be followed to ensure that these distributions are not subject to additional taxes or penalties. In this blog post, we will outline the key rules governing 72(t) distributions.

1. Substantially Equal Periodic Payments (SEPP)

The primary requirement for a 72(t) distribution is that you must take Substantially Equal Periodic Payments (SEPP) from your retirement account. This means that you must withdraw a specific amount of money at regular intervals (e.g., monthly, quarterly, or annually) over a specified period of time. The IRS provides three methods for calculating SEPP amounts:

– Required Minimum Distribution (RMD) Method: This method calculates your payments based on your account balance and life expectancy as determined by IRS tables.

– Fixed Amortization Method: This method amortizes your account balance over a specified number of years using a fixed interest rate.

– Fixed Annuitization Method: This method calculates payments based on an annuity factor derived from an IRS-approved mortality table and a fixed interest rate.

You can choose any of these methods to calculate your SEPP amount, but once you have started taking distributions, you cannot change the calculation method unless certain exceptions apply.

2. Commitment to the Payment Schedule

Once you begin taking 72(t) distributions, you must continue receiving SEPPs for at least five years or until you reach age 59½, whichever is longer. For example, if you start taking distributions at age 55, you must continue until age 60. If you start at age 58, you must continue until age 63. If you modify or stop the payments before the required period ends, you may be subject to the 10% early withdrawal penalty on all distributions taken up to that point, plus interest.

3. No Additional Contributions or Withdrawals

While you are taking 72(t) distributions, you cannot make any additional contributions or withdrawals from the retirement account being used for SEPPs. This means that if you need to access additional funds from your retirement account during this period, you may face penalties and taxes on those withdrawals.

4. Reporting Requirements

When taking a 72(t) distribution, it is crucial to accurately report these payments on your tax return to avoid potential penalties. You will need to report the total amount of SEPPs received during the year on Form 1040 or Form 1040-SR as a taxable distribution from your retirement account. Additionally, it may be necessary to file Form 5329 with your tax return if an exception applies to avoid the early withdrawal penalty.


An IRS Rule 72(t) SEPP distribution can be a valuable financial planning  strategy for accessing retirement funds early without incurring penalties. However, it is essential to understand and follow the rules governing these distributions carefully. By adhering to SEPP requirements, committing to the payment schedule, avoiding additional contributions or withdrawals, and accurately reporting your distributions on your tax return, you can enjoy penalty-free access to your retirement savings before age 59½. As always, it is recommended that you consult with a financial professional before making any decisions regarding your retirement planning strategy.

A quick phone call will help you determine if this is right for you