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This calculator will show the long-term impact on your retirement account of taking a 72(t) distribution from an IRA. It looks at the annual distributions you'll be taking from the account in combination with projected future earnings to produce a reasonable calculation of how fast you'll draw down the funds in your IRA and give you an idea of how long you can expect those funds to last. It will also show you how much you can receive each year through a 72(t) distribution and gives you the option of halting distributions after five years or age 60 if you wish.
A 72(t) distribution is an option under the tax code that allows you to take distributions from an IRA before age 59½ without paying the usual 10 percent penalty. You do not have to be sick, disabled or face other extenuating circumstances to use this option; you just have to follow the guidelines.
Those guidelines require that you take roughly equal distributions from the account for at least five years or until you reach age 59½, whichever comes last. These "substantially equivalent" distributions are based on formulas designed to fully draw down the account over your remaining life expectancy, of which you have three options to choose from.
Note that you do not need to continue following these formulas after taking the minimum number of 72(t) distributions (five years or reaching age 59½, whichever comes last). At that point, you can begin taking distributions in different amounts or even cease taking distributions to allow your account to begin growing again, if you choose to do so.
Your three options for determining your "substantially equivalent" distributions are as follows.
In all three options, life expectancy is based on the IRS Single Life Expectancy Table. The Reasonable Interest Rate is defined as less than or equal to120 percent of the Federal Mid-Term Rate in one of the previous two months. Both the Life Expectancy table and current Federal Mid-term rate are programmed into this calculator.
You can only take a 72(t) distribution from an IRA and not from a 401(k) or 403(b) retirement account. In some cases, you may be able to roll a 401(k) or 403(b) into an IRA to take a 72(t) distribution.
The exact rules for a 72(t) distribution are fairly complex, so it's important to speak with a financial consultant before proceeding.
Enter your information in the boxes indicated. If you have questions about any of these, click on the title of the box for more information.
In particular, note the following:
The calculator will display your annual 72(t) distributions at the top of the page, while the Account Balance by Age graph will illustrate the rate at which your IRA will be drawn down. Use the "View Report" button to view more detailed information.