How to Legally Get Your Hands on Your IRA Money Before
You’re 59.5, Tax-Free

IRS has a rule called a 72T, “equally substantial distribution”. By using IRS’s rule 72(t) it ELIMINATES the 10% early withdrawal penalty normally due for withdrawals prior to age 59/12.  

Here’s how it works.

Let’s say you are still working but want to retire (let’s say in this example) at the age of 55.  First you quit working. Then you ROLL your 401k into an IRA. After the rollover is completed you apply for a 72(t) “equally substantial distribution”. The IRS will offer you (3) optional payout amounts. The (3) IRS optional payout methods will tell you how much the “equally substantial distribution” will be based on your age, the age of your beneficiary, the amount of money you have, the % rate used for the calculation and how long they expect you to live (based on IRS's mortality table).

Here is an example for you:

An individual age 55 (with the same age beneficiary) who has $250,000 and wants to set up a 72(t), (using a rate of 4.23% for example) this would be the payout options to choose from:

(NOTE: This information was provided by Prudential's customer service dept.)

The rule is, once a rollover is completed and a 72(t) is setup to pay out an income stream, it must continue until the age of 59 ½ has been reached or for a minimum of 5 years, whichever comes last.

For example, if you start a 72(t) at the age of 57, it must run until you are age 62, then it stops. If you are age 50, then it runs until you reach age 59 ½, then it stops.

After the 72(t) has stopped, then of course you can take out of your IRA any amount you might desire or require. I need to point out, just for clarification, that YES all the income you receive is fully “income taxable” at your applicable income tax rate but without any added penalty.

NOTE: The above calculations are based on the NEW IRS 72(t) rules, as established by Congress, effective January 1st, 2003!A word of CAUTION!

Do it right and it works beautifully. Do it wrong by withdrawing too much and you can end up broke! PLUS, the IRS may assess the 10% penalty on all amounts withdrawn, if the IRA account runs out of money before the end of the 72(t) scheduled time-frame. That's the rule. T

Therefore, it's imperative you work with someone who knows what they are doing! CD’s can not be used effectively as an investment vehicle for a 72(t) distribution.

Not all (Financial Advisors, CPA’s, Attorney’s or otherwise) know about this little known 72(t) IRS rule. Also, NOT ALL companies know how to do a 72(t), or how to set it up properly, or even have the mechanical or electronic means available, to do such distributions! 

Very few fixed annuities will work (but some may) because most fixed and Indexed annuities do not allow withdrawals during the first year of the contract and/or greater withdrawals than the earnings growth. Also, most IRA owners want to withdraw more than the growth generated by most fixed and Indexed annuities. 

I can provide you examples of the few that will work effectively. Just ask and I can e-mail that information to you.

I have effectively set-up 72(t)’s for income withdrawals prior to age 59 1/2 MANY TIMES throughout my 41 years and it works perfectly, if done correctly.  It is completely legal and ANYONE (at any age) can use a 72(t)! 

The most commonly used (effective) investment vehicles for a 72(t) are variable annuities. One of the main reasons, is the fact that today's variable annuities allow you to actively invest your money so it can continue to grow, offer diversification and protection, all at the same time, while you are pulling an income stream from it.