How 72(t) can get you early distributions from your IRA

If someone told you that there was a way to access you IRA funds before turning 59.5, would you want to know more? Tax laws are wonderful in that the better you know them, the more leniencies you can find. There are many routes of maximizing profits or deferring taxes, and in this particular case, there is a way to get early distributions from your IRA using section 72t of the Internal Revenue Code.

72t – How can get you early distributions from your IRA

This provision of code works with series of periodic payments, known formally as a Series Of Substantially Equal Periodic Payments. It can be shortened into acronym format and is often referred to as SOSEPP. Using this section of code you can access your IRA funds before the age of 59.5

First things first


You have to determine the amount of the annual distributions for which you are eligible from your IRA, which can be done in three ways.


Once you lock in your rate, there is no leniency to change or adjust payments, without steep penalties, for five years or until the age of 59.5 (whichever comes later).


Regardless of which route you take, all three methods take two factors into account:


The simplest method for calculating your SOSEPP is by using an online 72t calculator. For those looking for a more hands on approach the required minimum distribution is the next best method.




The required minimum distribution calculation requires your IRA balance (from the end of the previous year) to be divided by a life expectancy factor. It will take into account your age for the year, and will be different each year that you do the calculations.


There are three tables for life expectancy factors, to be used in different circumstances:


Example, using single life expectancy:

Account balance from previous year: $100,000

IRA owner’s age: 50

Life expectancy factor: 30.5


$100,000/30.5 = $3278.69


Fixed Amortization Method


The purpose of using this method is to create an amortization schedule over a set number of years, which is equal to your life expectancy factor from one of the tables. To get an accurate figure you must also specify an interest rate, which cannot exceed more then 120% of the federal mid-term rate published by the IRS.


Fixed Annuitization Method

While this method is similar to the previous, it requires an annuity factor instead of an expectancy factor. This factor can be found in the Mortality Table in Appendix B. Doing this also requires you to select an interest rate, again no more then 120% of the federal mid-term rate published by the IRS.


Maximize Your Payments


There is one way to manipulate or impact your payments through a section 72t.


If you have more then one IRA available you can transfer funds between accounts to either increase or decrease the annual payment that you receive. This has to be done prior to the inception of SOSEPP, as any changes done afterwards will be subject to penalty. The only activity that is allowed in the IRA account after commencing the 72t is the withdrawal of required distributions.


Rules To Live By


The amount you calculate will be the exact amount you will receive in each and every one of your payments for the latter of five years, or until you reach the age of 59.5.



The IRS is very strict about maintaining consistency, and does not offer much leeway for changes or mistakes.


It is easy to make simple mistakes such as withdrawing slightly more or less, forgetting an annual withdrawal, or accidentally taking two distributions in one year.


There is only one exception to make a change to your distributions; that is a one-time change from the fixed annuitization method or fixed amortization method, to the required minimum distribution method. This change can only be done during the enforcement period of the 72t.




If you make any changes to your periodic payments, apart from the one time allowable change, all of your distributions will become subject to penalty. That means every payment you have taken will be subject to a steep consequence.


You will be required to pay ordinary income tax on distributions, in combination to a 10% early withdrawal penalty, and you will also be subject to interest on any unpaid tax or penalty starting from your first withdrawal until the date that you broke the SOSEPP. If you have been taking distributions for a number of years already, there will be year’s worth of interest reflected on your bill from the IRS.


Taking all that into account, it’s easy to see how much you can end up paying for even the smallest mistake.

Blog May 17, 2017 Sarah Arkan No Comment(s)

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Written by Sarah Arkan

Sarah Arkan is a columnist for, providing financial insight and economical market condition updates.
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