Tax Playbook · Big life moves
72(t): retire early without the penalty
Pulling money from an IRA or 401(k) before age 59½ usually costs a 10% penalty on top of regular income tax. The 72(t) rule lets you skip that penalty if you set up steady, equal payments using one of three IRS formulas. Once you start, you must keep going for the longer of five years or until age 59½ — break the plan and the IRS can add the penalty back to every payment plus interest. Taking $25,000 a year under a valid plan saves the $2,500 yearly penalty each year.
Good for: Anyone retiring before age 59½ who needs income from their accounts.
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Recent articles & guides
- Investopedia: substantially equal periodic payments
- ChooseFI: substantially equal periodic payments for early retirement
- Motley Fool: Rule 72(t)
- One Day in July: IRS Rule 72(t)
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Educational summary, not tax advice. Limits and rules change — confirm current law with your tax adviser.