Rule 72(t)

Plan to retire early? Have a substantial retirement account built up? Then Rule 72(t) can help you access those funds early and without penalty before you reach retirement age.

Written by Ashlyn Brooks / August 1, 2022

Quick Bites

  • Rule 72(t) allows access to your retirement funds before age 59 ½.
  • Know the rules of SEPPs to avoid a 10% penalty for early withdrawal.
  • There are a few different ways to calculate your SEPP. Make sure to follow the guidelines to avoid extra penalties.

Ready to retire? Congratulations! But beware: If you retire too young, you may not have access to your retirement accounts until you reach 59 ½, unless you're willing to pay a 10% penalty.

Enter Rule 72(t). This rule is a section of the Internal Revenue Service code that allows funds to be pulled from a retirement account before the age of 59 ½ without the standard 10% penalty.[1] However, this is typically only feasible for individuals with a substantial balance in their retirement accounts. We’ll break down the details of Rule 72(t) in this article to see if it makes sense in your case.

Inside this article

  1. What is Rule 72(t)?
  2. Calculations for 72(t) payments
  3. More about SEPPs
  4. Example
  5. Who is eligible?
  6. Is it a good idea to withdraw?
  7. FAQ

What is Rule 72(t)?

Rule 72(t) is a section of the IRS code that covers the exceptions and processes to withdrawing your 401(k) or IRA funds early and without penalty. The benefit of retirement accounts is that they shelter your investments from capital gains and other taxes. The downside is that you don't have access to the money earned in your accounts until the age of 59 ½ and any early withdrawals are subject to a 10% penalty fee.

However, there are certain exceptions in place to avoid that 10% penalty. Some common exceptions to early withdrawal include:

  • Certain medical expenses

  • An inherited retirement account

  • The funds are needed to cover a permanent disability

  • Access to the funds for a first-time home purchase

If none of these exceptions apply to you then that is when Rule 72(t) comes into play. It allows you to establish a schedule of frequent (annual or more) withdrawals from your retirement account called, Substantially Equal Periodic Payments or SEPPs.

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Calculations for 72(t) payment amounts

“One common misconception people make when it comes to Rule 72(t) is what ‘equal substantial payments’ actually means," says Emily Casey Rassam, senior financial planner at Archer Investment Management. "Most people assume $50,000 dispersed over 5 years means they will withdraw $10,000 annually.”

Unfortunately, the calculations aren’t that simple. Payments for Rule 72(t) are determined in a few different steps. First, you will need to find out which of the three different IRS life expectancy tables you fit into.[2]

  • Uniform Life Table: married account holders, unmarried account holders with spouses who aren’t more than 10 years younger, and married couples whose spouses aren’t the sole benefactor of their accounts.

  • Single Life Table: applies to beneficiaries only

  • Joint Life and Last Survivor Table: for account holders whose spouse is more than 10 years younger and is also the sole benefactor of the account.

After you figure out which life expectancy table you belong to, you will then decide how to calculate your SEPP payments to best fit your situation. The three SEPP distribution methods are described below.

Required minimum distribution

The required minimum distribution method nets you the lowest possible withdrawal of the three different options. The calculation is as follows:

Account Balance / Life Expectancy (determined by IRS Table) = SEPP

The SEPP number you arrive at is the amount that you must withdraw in the first year. This calculation will be redone for each subsequent year you are enrolled in SEPP.

Fixed amortization

The IRS has come up with a not-so-easy to understand concept called "fixed amortization." Basically, it calculates a fixed payment that is higher than the required minimum distribution, but one that may not keep up with inflation.[1]

Fixed annuitization

The fixed annuitization method is the most complex of the three payment methods to calculate. This method uses an annuity factor when determining your SEPP amount. The annuity factor is calculated based on your life expectancy table, as well as an interest rate.[1] When you determine the amount from your calculations, you must make a withdrawal in the same amount with each passing year.

More about SEPPs

SEPP is an acronym for substantially equal periodic payments. SEPPs are how funds are distributed to you under Rule 72(t). Retirement accounts that are eligible to participate in the rule are:

Now, just because you and your type of retirement account are eligible for Rule 72(t) doesn’t mean the setup of your SEPPs will come easy. There are several rules to follow to avoid the 10% early withdrawal penalty.

Must meet the minimum withdrawal limit

You must take a minimum of one withdrawal a year for five years or until you reach 59 ½ years of age. You can take more withdrawals if you like but if you miss one withdrawal at any of your scheduled times, you will have to backpay 10% penalties on all the funds you have already received.

You still pay income taxes

You will still need to pay income taxes on your withdrawals to include your contributions, as well as on any earnings.

Account can not be employer managed

To be eligible for SEPPs, the account you are trying to make early withdrawals on can not be a retirement account you hold at your current employer.


As you can probably tell, IRS jargon and figuring out how to calculate your SEPPs can be difficult to muddle through. We will use the required minimum distribution method as an example because it is the most simple of the three to calculate.

  • 50-year-old male

  • 401(k) account = $800,000

  • Life Expectancy Factor = 34.2

  • Formula – Account Balance / Life Expectancy Factor = SEPP

  • $800,000 / 34.2 = $23,292 (first year payment)

While it is possible to do these calculations at home, it is highly advisable to consult a tax advisor before you withdraw any money from your retirement accounts.

Who is eligible?

Theoretically, anyone is eligible for Rule 72(t). However, it is usually reserved for individuals with a substantial balance in their retirement accounts or individuals relatively close to age 59 ½. The reason for this is that once you sign-up to receive your SEPPs you must receive those payments for at least 5 years or until you hit 59 ½ years of age, whichever is longer. That means that if you don’t have the funds to cover many years of SEPPs, you could incur hefty penalties.

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Is it a good idea to withdraw?

Rule 72(t) can be quite risky if you don’t play your hand correctly.

"Any breach in the guidelines to Rule 72(t) and you will have to pay back all the taxes," says Matthew J. Ure, President at Defense Retirement Systems. "Also, the 10% penalty will be retroactively assessed along with the interest and late payment fines on all previous withdrawals."

"That's not to say they should never be used. But historically the people who successfully used Rule 72(t) tend to be older so they are not committing to as long a period of lockup. They also tend to have a fairly large chunk of money outside of IRA/ 401(k) funds that they can use for extra and unforeseen expenses without needing to change the fixed payment amount.”


Can I still work while taking 72(t) distributions?

Yes. When taking 72(t) distributions the IRS is only concerned with the account sending the payment. They don’t look into your employment status or if you are receiving income elsewhere.

Can I stop 72(t) payments after five years?

Once you start receiving payments you must continue your 72(t) distributions for 5 years or until age 59 ½, whichever is longer. That means if you have longer than 5 years until you are 59 ½ then you must continue receiving payments and cannot stop them.

Article Sources
  1. “Substantially Equal Periodic Payments” IRS. Sep. 29, 2021.
  2. “Distributions from Individual Retirement Arrangements (IRAs)” IRS. May 2, 2022.

About the Author

Ashlyn Brooks

Ashlyn Brooks

Ashlyn is a personal finance writer with experience in budgeting, saving, loans, mortgages, credit cards, accounting, and financial services to name a few.

Full bio

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