Fixed Amortization Method


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Although there are exceptions, usually, funds withdrawn before age 59.5 are assessed a 10% early withdrawal penalty.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 If withdrawals are stopped, all funds that have already been withdrawn become subject to early withdrawal penalties.

  1. Required Minimum Distribution Method

    One of three methods by which early retirees of any age can access ...
  2. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
  3. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  4. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  5. Substantially Equal Periodic Payment ...

    A plan that allows individuals who have invested in an IRA or ...
  6. Required Minimum Distribution - ...

    The amount that Traditional, SEP and SIMPLE IRA owners and qualified ...
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

    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.
  6. 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.
  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. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  9. Professionals

    How to Protect Retirement and Help Adult Kids

    Parents can both protect their retirement money and help their adult kids. Here's how.
  10. Retirement

    10 Ways to Save Your Retirement: It's Not Too Late

    It's not too late to start saving for your retirement, even if you took longer to start thinking about it and doing something about it.
  1. How does a Roth IRA grow over time?

    Your Roth IRA account grows over time thanks to two funding sources: contributions and earnings. While your contributions ... Read Full Answer >>
  2. Can my 401(k) be seized or garnished?

    As long as your retirement funds are held in your 401(k) and you do not take them as distributions, your 401(k) cannot be ... Read Full Answer >>
  3. Can my IRA be taken in a lawsuit?

    Whether your IRA can be taken in a lawsuit depends largely on your state of residence and the judgment in question. There ... Read Full Answer >>
  4. 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 >>
  5. 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 >>
  6. 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 >>

You May Also Like

Hot Definitions
  1. Section 1231 Property

    A tax term relating to depreciable business property that has been held for over a year. Section 1231 property includes buildings, ...
  2. Term Deposit

    A deposit held at a financial institution that has a fixed term, and guarantees return of principal.
  3. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  4. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  5. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  6. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
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!