72(t) Distributions: Early Retirement Access & Penalties

72t distributions are retirement that are taken before a retiree reaches the minimum qualified age. However, the employee has qualified for penalty-free distributions because they meet certain criteria. Most individuals will never use 72t regulation, but you will need to use this provision if you plan to retire before the age of 59-1/2 and would like to use your retirement account.

Qualifying for 72t Distributions

If you retire before the age of 59-1/2, you can access your retirement funds without paying the standard 10 percent penalty. You may still owe taxes, depending on the type of retirement account you have set up. To qualify for this option, you must voluntarily terminate your employment and not seek new employment in the future.

Taking 72t Distributions

If you qualify for payments under 72t regulation, you can use one of three accounting methods to calculate your payments:

1. Required minimum distribution (most common)
2. Fixed amortization
3. Fixed annuitization

You must take regular, substantial payments using one of these accounting methods for five years, or until you reach age 59-12, whichever comes later. Then, you can begin taking distributions on your otherwise scheduled accounting method. If you fail to do this, you can be charged the 6 percent excess contribution penalty.