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In chapter 2, 72(t) distributions were mentioned, but not explained. What are 72(t) distributions from retirement plans?
We don’t discuss them in the book because it is rare that a client will need to use this method, however, it is a relatively simple idea. A 72(t) distribution is also called a Series of Substantially Equal Periodic Payments. This is a method in which you can receive distributions from your retirement account prior to age 59.5 and without receiving penalties. You, and your financial advisor, determine the amount of the annual distribution and beging taking payments. Once you begin the payments you must continue to take them for 5 years or until you reach 59.5, whichever is the longer of the two. There are three ways to determine the amount that your distribution should be, the Required Minimum Distribution method, the Fixed Amortization method, or the Fixed Annuitization method.
You can learn more about this technique and how to determine if it would work for you at: https://www.irs.gov/Retirement-Plans/Retirement-Plans-FAQs-regarding-Substantially-Equal-Periodic-Payments