A BNY MELLON COMPANY

Insights & Ideas

72(t) Distributions

If you need access to your retirement assets before age 59½, a 72(t) distribution allows for withdrawals from Individual Retirement Accounts (IRAs) without Internal Revenue Service (IRS) penalties.

If you want to retire early and start a new business or are faced with a job loss and need income, your advisor can help you determine if taking 72(t) distributions may be right for you. You should also consult with your tax or legal advisor before taking any distributions from a retirement plan to determine if the distributions meet the requirements for the exception to the premature distribution tax.

How 72(t) Distributions Work
Generally, taking distributions from a Traditional IRA before age 59½ will result in an IRS early withdrawal tax penalty. Under Section 72(t), the 10% IRA premature distribution penalty is waived for IRA distributions that are: 

  • Part of a series of substantially equal periodic payments made on a
    regular basis—at least annually1
  • Calculated according to one of the three IRS-approved methods:
    Required Minimum Distribution (RMD), fixed amortization or fixed annuitization
    methods2
  • Continued for at least five years or until the account owner reaches age 59½—
    whichever is longer

Any variation from the calculated distribution—taking more or less—will result in a 10% premature distribution tax penalty, plus interest, on all past distributions unless the account owner dies, becomes disabled or the account is depleted. State tax implications may also apply. However, if you selected either the fixed amortization or fixed annuitization metho d, you are allowed a one-time, irrevocable switch to the RMD calculation method without incurring penalties.

While you can take 72(t) distributions from Roth IRAs, it may not be necessary because Roth IRA contributions can be withdrawn free of federal taxes or penalties any time. In addition, amounts that were converted to a Roth IRA can also be distributed federal tax and penalty free as long as the Roth IRA was held for five years. 72(t) distributions would apply only to earnings in a Roth IRA, which would be taxable and incur a 10% penalty if the account was not held for five years and the owner is younger than 59½ (or
other exceptions apply).

You should discuss the financial impact of taking 72(t) distributions with your tax or legal advisor. The following example shows the monthly distribution amounts for the three different calculation methods.3 Additionally, there are three different life expectancy tables that the IRS allows you to use when calculating your substantially equal periodic payments with the Fixed Amortization or the RMD methods.

72(t) Distribution Example

  

Consolidate Retirement Assets
If you need to set up 72(t) distributions, a rollover IRA can help you consolidate assets from any former employer’s plan and provide a more holistic picture of your retirement assets. You may want to also consider allocating your overall retirement investments to two IRAs, one for taking 72(t) distributions and one that can continue to grow tax-deferred. This may allow you to maintain maximum flexibility and take distributions from the second IRA as needed in the future.

Talk to Your Financial Professional to Find Out More
You should consult with your tax or legal advisor before taking any distributions from a retirement account. While 72(t) distributions provide one of the most advantageous ways to access IRA assets early, dipping into retirement savings can have serious consequences and should be done only if necessary. Early withdrawal reduces the growth potential of your overall retirement portfolio and increases the risk of outliving your income in retirement. You should also consider whether you may return to the workforce in the future, which affects the size of the distribution you can take and the calculation method you use. Your advisor can help you identify any potential risks to your retirement strategy.


Investors should consider the investment objectives, risks, charges, and expenses of any Dreyfus fund carefully before investing. Contact your financial advisor and obtain a prospectus, or a summary prospectus, if available, that contains this and other information about any Dreyfus fund, and read it carefully before investing.

This information is general in nature and is not intended to constitute tax advice. Please consult your tax advisor for more detailed information on tax issues and advice on your specific situation.
There are fees, expenses, taxes and penalties associated with IRAs. Taxable amounts withdrawn prior to age 59½ may be subject to an additional 10% penalty tax.

1 Any variation from the calculated distribution amount—taking more or less—will result in a 10% tax penalty, plus interest, retroactively applied to all past distributions through the end of the year of the modification unless the account owner dies, becomes disabled or the account is depleted.

2 Account owners who have selected either the fixed amortization or fixed annuitization methods are allowed a one-time, irrevocable switch to the RMD method without incurring penalties.

3 For illustrative purposes only. You must choose a life expectancy table, but you must continue taking distributions based on the life expectancy table you initially choose. There are three different life expectancy tables that may be used for calculating SEPP. Example assumes that distributions occur for the five-year period, ending on the fifth anniversary of the first distribution until age 59½.

4 The maximum interest rate cannot be more than 120% of the federal mid-term rate as published monthly by the IRS.

5 The RMD Method is recalculated each year. This amount is for year one, and subsequent years will vary.

6 This method of calculation determines a fixed distribution amount. The amount is calculated in the first year and that amount is taken for subsequent distribution years.