Strategies to avoid the 10% early withdrawal penalty – 72T payments

May 07, 2019
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If you find yourself in a situation that requires a withdrawal from your retirement accounts, there may be ways to do so without incurring the typical 10% early withdrawal penalty. Over the next few weeks, I will discuss a few of these strategies. While it is not typically advised to do so, we realize that sometimes there are extraordinary circumstances that necessitate it.

IRS code 72(t) allows for one of these strategies. Under the code, the account holder of an IRA can take substantially equal periodic payments, and if done correctly, can avoid the 10% penalty associated with IRA withdrawals before the age of 59 ½. If you decide to go this route, there are several rules that have to be followed perfectly. If done incorrectly, the 10% penalty may apply to all distributions, including past ones.

Key Rules

-Continue making payments for 5 years or until age 59 ½, whichever is longer.

-Use one of three methods to calculate withdrawal (RMD, fixed annuitization, or fixed amortization).

-Cannot add funds or make withdrawals from the account beyond the 72(t) distribution.


There are several other rules that apply so be sure to work with a qualified tax advisor before implementing.


Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.