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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.
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.
The calculator figures the annual payments you can receive under the three allowed methods:
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:
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.