Fixed Amortization Method

AAA

DEFINITION of 'Fixed Amortization Method'

One of three methods by which early retirees of any age can access their retirement funds without penalty before turning 50.5. The fixed amortization method amortizes the retiree's account balance over his/her remaining life expectancy as estimated by IRS tables at an interest rate that is not more than 120% of the federal mid-term rate. Once the withdrawal amount is calculated, it cannot be changed.

The two other methods for early, penalty-free retirement withdrawals are the fixed annuitization method and the required minimum distribution method. Each method can result in quite different distribution amounts. The fixed amortization method can produce higher payments than the required minimum distribution method, but involves complex calculations and runs the risk of not keeping up with inflation.

BREAKING DOWN 'Fixed Amortization Method'

Although there are exceptions, usually, funds withdrawn before age 59.5 are assessed a 10% early withdrawal penalty. Retirees can elect to receive their distributions annually, quarterly or monthly. If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.

RELATED TERMS
  1. Required Minimum Distribution Method

    One of three methods by which early retirees of any age can access ...
  2. Roth IRA

    An individual retirement plan that bears many similarities to ...
  3. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
  4. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  5. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  6. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
Related Articles
  1. Budgeting

    Managing Income During Retirement

    Learn some sensible strategies for making your hard-earned savings last for as long as you need them.
  2. Taxes

    An Introduction To Correcting Ineligible IRA Contributions

    Eager to save for retirement? Find out how to avoid overpayment penalties.
  3. Taxes

    Avoiding "Prohibited Transactions" In Your IRA

    To avoid jeopardizing your IRA assets, find out what transactions are prohibited.
  4. Taxes

    Avoiding IRS Penalties On Your IRA Assets

    The best way to avoid additional charges and taxes is to know which transactions have expensive consequences.
  5. Retirement

    Roth Vs. Traditional IRA: Which Is Right For You?

    To answer this question, you need to consider several of the factors we outline here.
  6. Retirement

    Did Your Roth IRA Conversion Pass or Fail?

    If you are moving assets from a Traditional IRA to a Roth IRA, you need to know the associated tax rules.
  7. Taxes

    Recharacterizing Your IRA Contribution Or Roth Conversion

    Learn why you might make such a transaction and find out how to calculate how it will affect you.
  8. Retirement

    What's a Defined Contribution Plan?

    A defined contribution plan is a company retirement plan that specifies the amount of money contributed to it.
  9. Retirement

    Infographic: How Much Money Do You Need to Retire in Hawaii?

    In this infographic we break down cost of living in Honolulu, Hawaii in terms of taxes, rent, food and other expenses and offer comparison to the cost of living in New York, Los Angeles, San ...
  10. Term

    What are Pension Funds?

    A pension fund is a company-sponsored fund that provides income for employees in retirement.
RELATED FAQS
  1. Are mutual funds considered retirement accounts?

    Unlike a 401(k) or Individual Retirement Account (IRA), mutual funds are not classified as retirement accounts. Employers ... Read Full Answer >>
  2. Can my IRA be garnished for child support?

    Though some states protect IRA savings from garnishment of any kind, most states lift this exemption in cases where the account ... Read Full Answer >>
  3. Can I use my IRA savings to start my own savings?

    While there is no legal reason why you cannot withdraw funds from your IRA to start a traditional savings account, it is ... Read Full Answer >>
  4. Can creditors garnish my IRA?

    Depending on the state where you live, your IRA may be garnished by a number of creditors. Unlike 401(k) plans or other qualified ... Read Full Answer >>
  5. Can my IRA be used for college tuition?

    You can use your IRA to pay for college tuition even before you reach retirement age. In fact, your retirement savings can ... Read Full Answer >>
  6. Why are IRA, Roth IRAs and 401(k) contributions limited?

    Contributions to IRA, Roth IRA, 401(k) and other retirement savings plans are limited by the IRS to prevent the very wealthy ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Recession

    A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, ...
  2. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  3. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  4. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  5. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  6. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!