72(t) Distribution Options Calculator
This 72(t) calculator will help you determine how much you would receive each month or year if you choose to take penalty-free 72(t) withdrawals from an IRA prior to age 59½. This is an option that lets you avoid the usual 10 percent penalty on early distribution by making a series of at least five "substantially equal" annual withdrawals. The calculator will show how much you would receive under each of the three methods allowed to determine your annual withdrawals, and how quickly you would draw down your account balance until you reach age 59½, when normal distributions are allowed.
Financial Calculators from
72(t) Calculator Inputs
Press spacebar to hide inputs
72(t) Distribution Options by Reasonable Interest Rate and Type
press spacebar to hide graph
Account Balance by Age with Maximum 72(t) Distribution
press spacebar to show graph
Reasonable interest rate
This is any rate less than or equal to 120% of the Federal Mid-Term rate for either of the two months immediately preceding the month in which the distribution begins. Click here for more information about Federal Interest rates. For Oct. 2019, 120% of the Federal Mid-Term rate is 1.81%.
It is important to note that the associated law that created 72(t) distributions did not define what was to be considered a reasonable interest rate. As such, the guidance from the IRS generally flows from the concept that they will not allow people to circumvent the requirement of substantially equal periodic payments (SEPP) throughout your lifetime by using an unreasonably high interest rate.
72(t) withdrawals setup prior to January 2003, had some flexibility in the choice of the reasonable rate to use. However, in 2002, the IRS issued new rules stating that only rates less than or equal to 120% of the Federal Mid-Term rate would be considered reasonable. You are now required to use a rate that is less than or equal to 120% of the Federal Mid-Term rate for either of the two months immediately prior to the start of your distribution plan.
Substantially Equal Periodic Payments (SEPP)
The rules for 72(t)/(q) distributions require you to receive Substantially Equal Periodic Payments (SEPP) based on your life expectancy to avoid a 10% premature distribution penalty on any amounts you withdraw. Payments must last for five years (the five-year period does not end until the fifth anniversary of the first distribution received) or until you are 59-1/2, whichever is longer. Further, the SEPP amount must be calculated using one of the IRS approved methods which include:
- Required minimum distribution method: This is the simplest method for calculating your SEPP, but it also typically produces the lowest payment. It simply takes your current balance and divides it by your single life expectancy or joint life expectancy. Your payment is then recalculated each year with your account balance as of December 31st of the preceding year and your current life expectancy. This is the only method that allows for a payment that will change as your account value changes. Even though this may provide the lowest payment, it may be the best distribution method if you expect wide fluctuations in the value of your account.
- Fixed amortization method: With this method, the amount to be distributed annually is determined by amortizing your account balance over your single life expectancy, the uniform life expectancy table or joint life expectancy with your oldest named beneficiary.
- Fixed annuitization method: This method uses an annuity factor to calculate your SEPP. This is one of the most complex methods. The IRS explains it as taking the taxpayer's account balance divided by an annuity factor equal to the present value of an annuity of $1 per month beginning at the taxpayer's age attained in the first distribution year and continuing for the life of the taxpayer. For example, if the annuity factor for a $1 per year annuity for an individual who is 50 years old is 19.087 (assuming an interest rate of 3.8% percent), an individual with a $100,000 account balance would receive an annual distribution of $5,239 ($100,000/19.087 = $5,239). This calculator uses the mortality table published in IRS Revenue Ruling 2002-62, which is a non-sex based mortality table. Please note that your annuitized SEPP is based on your life expectancy only, and is not based on the age of your beneficiary.
In addition, on July 3rd, 2002, the IRS ruled that you could change your distribution type one-time without penalty from the Annuitized or Amortized methods to the Required Minimum Distribution method. This would allow account holders the option to move from a fixed payment type to a payment that fluctuates annually with the value of their account. The primary reason for this exception is to allow individuals who have suffered large losses, the option to reduce their distribution to prevent their retirement account from being prematurely depleted. For more information on this important exception please see Revenue Ruling 2002-62 on www.treasury.gov.
If payments are changed for any reason other than death or disability before the required distribution period ends, the distributions may be subject to a retroactive application of the Premature Distribution penalty. It is 10% (plus interest) for all years beginning the year such payments commenced and ending the year of the modification. It is important to remember that while 72(t) distributions are not subject to the 10% penalty for early withdrawal, all applicable taxes on the distributions must still be paid. Further, taking any early distributions from a retirement account reduces the amount of money available later during your retirement. Please contact a qualified professional for more information.
The account balance used to determine the payment must be determined in a reasonable manner. For example, with a first distribution taken on July 15, 2013, it would be reasonable to determine the account balance based on the value of the IRA from December 31, 2013 to July 15, 2013. For subsequent years, the same valuation date should be used.
This is your current age. Use the age you will turn on your birthday for the year you are receiving the distribution.
This is your beneficiary's age. Use the age your beneficiary will turn on their birthday for the year you are receiving the distribution. This entry is ignored if you do not use your Joint Life Expectancy to calculate your SEPP.
Choose life expectancy tables
There are three different life expectancy tables that the IRS allows you to use when calculating your SEPP with the 'Fixed Amortization' or the 'Required Minimum Distribution' methods. It is important to note that once you have chosen a distribution method and life expectancy table, you cannot change either throughout the course of your distributions. (Except for a one-time change from the Annuitized or Amortized methods to the Life Expectancy method, see SEPP definition for more details).
|Uniform Lifetime||This is a non-sex based table developed by the IRS to simplify minimum distribution requirements. The uniform lifetime table estimates joint survivorship, but does not use your beneficiary's age to determine the resulting life expectancy. This table can be used by all account owners regardless of marital status or selected beneficiary.|
|Single Life Expectancy||This is a non-sex based life expectancy table. This table does not use your beneficiary's age to calculate your life expectancy. This table can be used by all account owners regardless of marital status or selected beneficiary. Choosing single life expectancy will produce the highest distribution of the three available life expectancy tables.|
|Joint Life Expectancy||This is also a non-sex based life expectancy table for determining joint survivorship using your oldest named beneficiary.|
72(t) Distribution Options Overview
With retirement accounts, the general rule is that you can't take withdrawals from them until you are at least age 59½. If you do, you usually have to pay a 10 percent penalty on each withdrawal.
One key exception though, is a 72(t) distribution. A 72(t) distribution allows you to begin making withdrawals from an IRA prior to age 59½ without penalty, provided you follow certain guidelines.
For starters, you don't have to be ill, disabled or facing a financial crisis to be able to utilize a 72(t) distribution. You just have to follow the guidelines and file the proper paperwork.
With a 72(t), you have to take at least five "substantially equivalent periodic payments" annually, with the amount determined by an IRS formula based on your life expectancy. There are three ways of determining the annual payments, all of which are based on formulas designed to pay out the entire account in nearly equal payments over the course of your statistically expected lifetime.
Once you begin distributions under a 72(t), you must continue them for at least five years or until age 59½, whichever comes last. So if you began 72(t) distributions at age 57, you'd have to take them until at least age 62. Once that requirement is met, you can cease taking distributions if you wish, up until age 70½.
You can't use a 72(t) with a 401(k) or 403(b) account. However, those who have left the employer with whom they had such an account may be able to roll it over into an IRA, from which a 72(t) would be allowed.
This is can be a fairly complicated financial decision, so it's important that you talk with a financial advisor before proceeding with a 72(t) or rollover. However, this calculator can help you determine if that's a path that may be worth pursuing.
Using the 72(t) Distribution Options Calculator
The calculator figures the annual payments you can receive under the three allowed methods:
- Required minimum distribution: Simply divides the money available in your IRA by your remaining years of life expectancy. This provides the smallest payment of the three. Note that this calculation is re-done every year, so your annual payments will increase or decrease each year depending on how your investments performed.
- Fixed amortization: This provides you with a fixed annual payment based on the expected draw-down amortization of your account over your life expectancy. This method typically provides the highest payments.
- Fixed annuitization: Payments are based on an annuity factor established by the IRS. This method is the most complex calculation and usually provides payments in the mid-range between the other two.
To do the calculation, enter your current IRA balance, the Reasonable Interest Rate (no greater than 120 percent of the Federal mid-term rate in one of the last two months), your age and the age of your beneficiary, if applicable. The calculator will automatically figure your life expectancy going forward.
You also need to choose which life expectancy table you wish to use, depending on whether you have a beneficiary or not:
- Single life expectancy: Periodic payments will be based on your life expectancy alone
- Joint life expectancy: Payments will be based on the life expectancy of your oldest named beneficiary
- Uniform lifetime: A simplified method for determining minimum distributions that estimate joint survivorship but does not take into account the age of your beneficiary.
Once you've entered the information required, the calculator will determine your annual distributions under all three methods and the rate at which your IRA will be drawn down. Click "View Report" for a more detailed breakdown.
If you have questions about any of the information you are asked to provide, clicking on the title of each box in the calculator will provide a more detailed explanation.
Other Mortgage and Financial Calculators
In addition to the standard mortgage calculator, this page lets you access more than 100 other financial calculators covering a broad variety of situations. Choose from calculators covering various aspects of mortgages, auto loans, investments, student loans, taxes, retirement planning and more.
- Adjustable Rate Mortgage Calculator
- Interest Only ARM Calculator Overview
- How much can I borrow?
- Mortgage comparison: 15 years vs 30 years
- Balloon Loan Calculator
- ARM vs. Fixed-Rate Mortgage Calculator
- APR Calculator for Adjustable Rate Mortgages
- Bi-weekly Payment Calculator
- Blended Rate Mortgage Calculator
- Fixed Rate Mortgage vs. Interest Only ARM calculator
- Mortgage Tax Savings Calculator
- Rent vs. Buy Calculator
- Mortgage Payoff Calculator
- Mortgage Required Income Calculator
- Interest-Only Mortgage Calculator
- Mortgage Qualifying Calculator
- Mortgage Calculator Simple (PITI) - Mortgage Calculation
- Mortgage APR Calculator
- Bi-Weekly Payment Calculator For an Existing Mortgage
- Enhanced Loan Calculator
- Existing Loan Calculator
- Mortgage Debt Consolidation Calculator
- Mortgage Points Break-Even Calculator
- Refinance Break-Even Calculator
- Refinance Calculator
- Auto Rebate vs. Low Interest Financing
- Bi-weekly Payments for an Auto Loan Calculator
- Dealer Financing vs. Credit Union Financing Calculator
- Auto Lease vs. Auto Buy Calculator
- Home Equity vs. Auto Loan Calculator
- Auto Loan Calculator
- Bi-weekly Payments for an Auto Loan Calculator
- Auto Loan Payoff Calculator
- Retirement Income Calculator
- 401(k) Net Unrealized Appreciation Calculator
- 401(k) Savings Calculator
- 403(b) Savings Calculator
- 457 Savings Calculator
- 72(t) Distribution Impact Calculator
- Beneficiary Required Minimum Distributions
- Pension Plan Retirement Options
- Retirement Contribution Effects Calculator
- Retirement Planner
- Roth vs. Traditional IRA Calculator
- 72(t) Distribution Options Calculator
- Social Security Benefits Calculator