72(t) Distributions

With a 72(t) distribution, you can take Substantially Equal Periodic Payments (SEPPs) from your IRA, based on a period extending at least over their life expectancy (or joint life expectancy of the individual and his/her designated beneficiary). A 72(t) distribution allows you to avoid the 10% early withdrawal penalty while preserving the tax-deferred benefits of your savings. You will, however, still have to pay ordinary income taxes on the amount you withdraw. Once you start 72(t) distributions, you’ll generally need to continue them, using the same calculation method each year until you reach age 59 1⁄2 or for five consecutive years, whichever is longer. Substantially equal periodic payments is one of several exceptions to the 10% early withdrawal penalty listed under section 72(t) of the IRS Code.

SEPPs may be right for you if:

You need supplemental income

You require emergency access to savings

You have exhausted other taxable savings, investments and resources

You or your spouse have suffered a job loss or are taking early retirement

You are facing mounting debt or bills

How to Calculate Distributions
The amount you withdraw must be calculated according to one of three IRS-approved methods: life expectancy (also known as the Required Minimum Distribution (RMD), fixed amortization or fixed annuitization. All three of these methods are based on your remaining life expectancy, or the joint life expectancy of you and your spouse. Each will produce slightly different withdrawal amounts, but in general, the older you are and the larger your account is, the more you’ll be allowed to take out. Please note that 72(t) distributions are not suitable for all investors. Talk to your financial or tax advisor about whether or not SEPPS are appropriate for your individual situation and if so, which method may work best for you.¹

¹If you modify your payment method once it begins, the 10% penalty, plus interest, will be applied retroactively beginning with the first year of distribution. Please note: The IRS has allowed taxpayers that are currently calculating their SEPPs by annuitizing or amortizing the IRA account a one-time election to switch to the life expectancy method in any subsequent year. Talk to your financial or tax advisor for more information.

72(t) calculation methods

The 10% Penalty Doesn’t Always Apply
With SEPPs, you can take penalty-free withdrawals for any reason. IRS code section 72(t) also allows for times or events when people younger than 59 1⁄2 can take a lump sum distribution from an IRA without triggering the 10% penalty.* These situations include:

• Death or disability
• Certain qualified higher educational expenses
• Medical expenses over 7.5% of modified adjusted gross income
• Health insurance premiums, if you are unemployed more than 12 weeks
• Qualified acquisition costs toward the purchase of a first home
  (up to $10,000 lifetime limit)
• Qualified distributions for military reservists and members of the National Guard
• Other penalty free options are available

*Prior to 59 1⁄2, no penalty applies to a timely withdrawal of a principal amount of an excess or nondeductible contribution for a qualifying rollover distribution.

Create supplemental income through 72(t) distributions

You can supplement your income before you reach retirement age by setting up a 72(t) SEPP distribution from your IRA. Remember that you can roll over eligible 401(k) distributions and IRA accounts into a single account to create a larger pool from which to make these withdrawals. This strategy may not be suitable for all investors since payments cannot be modified once they begin until after age 59 1/2 or for five consecutive years, whichever is longer. You should always check with your tax or legal advisor before engaging in any transaction involving IRAs or other tax-advantaged investments.

Consult
Calculate
Withdraw
Talk to your financial advisor about how to balance your current need for income with your future financial security. Be sure to review your total financial portfolio—including both taxable and retirement accounts—with your advisor.	Determine the withdrawal calculation method that will work best for you. Remember that the life expectancy method typically yields the lowest initial withdrawal, but that this amount grows over time. Annuitization and amortizations usually provide a higher initial withdrawal amount, but remain level throughout the withdrawal period.	You will need to continue withdrawing money every year for five consecutive years or until you reach age 59 1⁄2, whichever is longer. If you stop taking distributions or change the method by which you calculate those distributions before this time, you will be assessed with a 10% penalty on all distributions retroactively.**

**The 10% penalty may also be assessed retroactively, with interest, if you deposit contributions or transfer any money in or out of the IRA that is distributing SEPPs.