72(t) Distributions: Pre-59½ Qualified Plan Distributions


The 72(t) Calculator illustrates the various methods for taking penalty-free withdrawals from a qualified plan.

How to withdraw funds from an IRA before 59 ½ without a tax penalty:

Use the IRS Code Section 72(t)(2)(a)(iv). You can avoid the 10% penalty if you take "substantially equal periodic payments." To take a series of "substantially equal" payments from your IRA without a tax penalty, you must withdraw money at least once a year, and, additionally, withdrawals must continue for at least five years or until the client reaches age 59½, whichever is later.


A 45 year old must take withdraws for 14½ years, a 51 year old must take them for 8½ (to at least 59½). A 57 year old would have to take withdrawals for 5 years, until age 62.

Note: The amount of withdrawal is calculated based on the account balance of the retirement account on December 31st of the preceding year for the year the withdrawals are to begin.

72(t) Distribution Methods

The amount of the penalty-free withdrawal varies considerably, depending on which of the three IRS approved methods are used to calculate the withdrawals. The three methods are explained as follows:

1.The life expectancy method is calculated by dividing the balance of any or all of the client's IRAs on December 31st of the previous year by their life expectancy. This amount would have to be continued for 5 years, or until age 59½, whichever is later.

2.The amortization method allows one to amortize the balance of any or all of the client's IRAs on December 31st of the previous year over their life expectancy, using a "reasonable" interest rate assumption for earnings on their account. The IRS has ruled that a reasonable interest rate is up to 120% of the "Long Term Applicable Federal Rate," which the IRS publishes monthly. For example: In October 2012, this rate was 0.93%. Therefore, in this case, an interest rate of 1.12% could "reasonably" (by definition) be used in the amortization calculation. This amount would have to be continued for 5 years or until age 59 ½, whichever is later.

3.The annuity factor method results in the highest withdrawal amounts. This calculation involves dividing the IRA balance by an "annuity factor" -- the present value of a payment of $1.00 per year for the client's life expectancy, based on "reasonable" mortality tables and a "reasonable" interest rate at the time the payments begin.