A 72(t) withdrawal lets you take money from an IRA, or from a former employer’s 401(k), before age 59½ without the 10% early-distribution tax. The catch is that you must take a “series of substantially equal periodic payments” (SEPP) calculated by an IRS-approved method, and keep taking them until the later of five years or age 59½. Income tax still applies to every payment.
It’s one of the most reliable ways to reach pre-tax money early, and one of the least forgiving. Change the payments before the period ends and the 10% tax comes back on everything you’ve withdrawn, plus interest.
How does a 72(t) withdrawal work? #
Section 72(t) of the tax code lists exceptions to the 10% additional tax on early distributions. Substantially equal periodic payments are one of them, and the IRS’s SEPP guidance sets the rules:
- You pick an account and one of three calculation methods.
- The method, your life expectancy and the account balance set your annual payment.
- You take that payment (or the recalculated amount, under one method) every year.
- You continue until the later of the fifth anniversary of your first payment or the date you reach 59½.
It works on IRAs at any time, and on a 401(k) or similar plan only after you’ve left that employer. Most people roll the old 401(k) into an IRA first because it makes splitting accounts easier.
What are the three 72(t) calculation methods? #
| Method | How it works | Payment | Relative size |
|---|---|---|---|
| Required minimum distribution (RMD) | Balance ÷ life expectancy factor, recalculated every year | Changes yearly | Smallest |
| Fixed amortization | Balance amortized over life expectancy at a chosen interest rate | Fixed | Largest, with fixed annuitization |
| Fixed annuitization | Balance ÷ an annuity factor from a mortality table and interest rate | Fixed | Similar to amortization |
For a sense of scale, take a 50-year-old with $500,000 in an IRA and a single life expectancy factor of about 36:
- RMD method: about $13,800 in year one, changing with the balance every year.
- Fixed amortization at 5%: about $30,200 a year, the same every year.
That gap is why most people who need the income choose one of the fixed methods. The RMD method is more of a safety valve (see below).
What interest rate can you use? #
Under IRS Notice 2022-6, the rate for the fixed methods can’t exceed the greater of 5% or 120% of the federal mid-term rate for either of the two months before your first payment. It’s a ceiling, not a floor: you can use a lower rate to get a smaller payment. When 120% of the mid-term rate is below 5%, 5% is the most you can use. The IRS publishes the mid-term rate each month in its applicable federal rate rulings.
Notice 2022-6 also lets you use the Single Life, Uniform Lifetime, or Joint and Last Survivor life expectancy tables. The Uniform Lifetime table produces the longest life expectancy and the smallest payment.
How long do 72(t) payments last? #
Until the later of five years from your first payment or age 59½:
- Start at 45: you’re locked in until 59½, which is 14½ years.
- Start at 52: until 59½, which is 7½ years.
- Start at 57: until 62, the five-year mark, even though you pass 59½ along the way.
The five years run from the date of the first payment, not calendar years, so check the exact date before you take a larger withdrawal.
What busts a 72(t) plan? #
The IRS calls it a modification. Common ones:
- Taking more or less than the calculated amount
- Skipping a year
- Adding money to the account, including a rollover in
- Moving money out of the account other than the scheduled payments
If you modify the plan early, you owe the 10% tax on the current distribution plus a recapture tax equal to the 10% that would have applied to every earlier payment, with interest. On a plan paying $30,000 a year that you break in year six, that’s roughly $18,000 in recaptured tax before interest.
One change is allowed. You can switch once from a fixed method to the RMD method without it counting as a modification. If markets fall hard and your fixed payment starts to look dangerous, that switch usually cuts the payment a lot.
How to size a 72(t) plan to what you need #
You don’t have to put your whole IRA on a schedule. The payment is based only on the account you designate.
Say you have $1 million in a traditional IRA and need $25,000 a year. At 5% amortization, the full balance would produce about $60,000, far more than you need and fully taxable. Split the IRA first: move about $415,000 into a separate IRA and run the 72(t) on that one. The rest stays flexible for later, for Roth conversions or a second 72(t) plan if you need more income.
Before you commit, check the payment against how long the money needs to last. Retire Goals has a Will My Money Last calculator: enter the balance, what you’ll withdraw in year one and an expected return, and it simulates the drawdown month by month to show how many years the money covers. It assumes your withdrawal rises with inflation each year, which a fixed 72(t) payment doesn’t, so its answer is a conservative check rather than an exact match.
72(t) vs other ways to access retirement money early #
| Option | Works on | Earliest age | Flexibility |
|---|---|---|---|
| 72(t) SEPP | IRAs; plans of former employers | Any age | Very rigid |
| Rule of 55 | The 401(k) of the employer you leave in or after the year you turn 55 | 55 (50 for some public safety workers) | Flexible amounts |
| Roth conversion ladder | Converted money in a Roth IRA | Any age, after each conversion’s 5-year wait | Flexible, needs planning ahead |
| Roth IRA contributions | Your original Roth contributions | Any age | Fully flexible |
| Taxable brokerage | Any taxable account | Any age | Fully flexible |
If you’re leaving a job at 55 or later, the Rule of 55 is usually simpler. If you retire in your 30s or 40s with time to plan, a Roth conversion ladder is more flexible. A 72(t) plan fits best when you need income soon, most of your money is in pre-tax accounts, and your spending is predictable.
SECURE 2.0 added a few small exceptions too, including one penalty-free emergency withdrawal of up to $1,000 a year. They don’t replace a bridge strategy, but the IRS exceptions list is worth knowing. And keep a cash cushion so a surprise bill doesn’t tempt you into an extra withdrawal from the 72(t) account; our guide to how much cash to keep in early retirement covers sizing it.
This is general education, not tax advice. The calculations are unforgiving, so many people have a CPA or their IRA custodian check the numbers before the first payment.
Frequently asked questions #
Can I stop 72(t) payments once I start? #
Not without penalty until the period ends. Stopping early is a modification, which triggers the 10% tax on every payment you’ve already taken plus interest. The exceptions are death and disability, and the one-time switch to the RMD method, which lowers payments but doesn’t stop them.
Can I use 72(t) on my current employer’s 401(k)? #
No. For a 401(k) or other employer plan, payments must begin after you’ve separated from that employer. Most people roll the old plan into an IRA, which also lets them split the balance to size the payment.
Do I pay income tax on 72(t) withdrawals? #
Yes. The 72(t) exception only removes the 10% additional tax. Payments from a traditional IRA or pre-tax 401(k) are ordinary income for federal and usually state tax.
What interest rate should I use for a 72(t) calculation? #
Any rate up to the greater of 5% or 120% of the federal mid-term rate for either of the two months before your first payment. The higher the rate, the larger your payment. Choose the rate that produces the payment you need, not automatically the maximum.
Can I set up a 72(t) plan on a Roth IRA? #
You can, but it’s rarely needed. Your original Roth contributions come out tax- and penalty-free at any age anyway. A 72(t) plan on a Roth only helps if you need to reach earnings early.