72(t) Articles

Who Qualifies for an IRS 72(t) SEPP Withdrawal?

IRS rule 72(t) is a great way to access your retirement funds early without incurring the 10% penalty that usually applies to early withdrawals. But who actually qualifies for this special exception? In this blog post, we’ll explore the requirements and eligibility criteria for taking advantage of this little known and often used rule.

What is a 72(t) SEPP?

72(t) SEPP is an early withdrawal from a qualified retirement plan or IRA that allows you to avoid the 10% penalty that usually applies to such withdrawals. This special exception was created by the IRS in order to help individuals access their retirement funds before they reach retirement age without incurring the early-withdraw penalty. The “72(t)” refers to Section 72(t) of the Internal Revenue Code, which outlines the rules and regulations surrounding these types of withdrawals.

Eligibility Requirements

In order to properly execute a 72(t) SEPP:

• You can start at any age

• You must take Substantially Equal Periodic Payments (SEPPs) for a minimum of 5 years or until age 59 1/2, whichever is longer.

• Your SEPPs cannot be modified or stopped once they are set up

• You cannot contribute any additional money into your account while taking SEPPs

• A life expectancy calculation must be made

• An interest rate assumption approved by the IRS must be used.

• Best to use a 72(t) friendly custodian

Tax Implications of a 72(t)

It’s important to note that while taking advantage of the 72(t) can help you avoid the 10% penalty on early withdrawals, it does not exempt you from paying taxes on those withdrawals. Any money withdrawn through a 72(t) will still be subject to ordinary income tax rates. Additionally, if you fail to adhere to any of the eligibility requirements outlined above, you may be subject to both penalties and taxes on your withdrawal amount.


IRS rule 72(t) can be an invaluable tool for accessing your retirement funds early without incurring hefty penalties. However, it’s important that you understand all of the eligibility requirements and tax implications before taking advantage of this special exception. If done correctly, this financial planning strategy can also be used for those individuals who want to unlock some or all of their pre-tax retirement funds prior to age 59 1/2 for any reason to retire early, start a business or to build wealth in other more tax-efficient investments.

Secret: Consult with an experienced and knowledgable financial advisor to help you with this planning strategy.

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