Rule 72(t)

AAA

DEFINITION of 'Rule 72(t)'

An Internal Revenue Service (IRS) rule that allows for penalty-free withdrawals from an IRA account. The rule requires that, in order for the IRA owner to take penalty-free early withdrawals, he or she must take at least five "substantially equal periodic payments" (SEPPs). The amount depends on the IRA owner's life expectancy calculated with various IRS-approved methods.

INVESTOPEDIA EXPLAINS 'Rule 72(t)'

Rule 72(t) allows you to take advantage of your retirement savings before the age of 59.5, when there is otherwise a 10% penalty on early withdrawal. The withdrawals, however, are still taxed at your income rate. The drawback to taking advantage of Rule 72(t) is that you may deplete your retirement accounts well before the end of your life expectancy. By taking out your funds early you are putting yourself in jeopardy in the future.

RELATED TERMS
  1. Nest Egg

    A substantial sum of money that has been saved or invested for ...
  2. Fixed Annuitization Method

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

    A United States government agency that is responsible for the ...
  4. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  5. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  6. Roth IRA

    An individual retirement plan that bears many similarities to ...
Related Articles
  1. Substantially Equal Periodic Payment ...
    Retirement

    Substantially Equal Periodic Payment ...

  2. 9 Penalty-Free IRA Withdrawals
    Taxes

    9 Penalty-Free IRA Withdrawals

  3. What are the
    Retirement

    What are the "certain requirements" ...

  4. Top Financial Frights: Emergencies & ...
    Investing Basics

    Top Financial Frights: Emergencies & ...

comments powered by Disqus
Hot Definitions
  1. Correlation

    In the world of finance, a statistical measure of how two securities move in relation to each other. Correlations are used ...
  2. Letter Of Credit

    A letter from a bank guaranteeing that a buyer's payment to a seller will be received on time and for the correct amount. ...
  3. Due Diligence - DD

    1. An investigation or audit of a potential investment. Due diligence serves to confirm all material facts in regards to ...
  4. Certificate Of Deposit - CD

    A savings certificate entitling the bearer to receive interest. A CD bears a maturity date, a specified fixed interest rate ...
  5. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  6. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
Trading Center