The theme this week on the Retirement Quick Tips Podcast is: penalty-free early withdrawals for retirement. 

Today, I’m talking about one of the most common ways to access your retirement accounts if you need to withdraw funds from your IRA or 401k prior to reaching age 59 ½. Normally, if you withdraw funds early from retirement accounts, you’ll be slapped with a 10% penalty, but you can get around this penalty by utilizing the rule of 72t. 

Here’s how it works, as described in an article on Investopedia: 

“To take advantage of this rule, the owner of the retirement account must take at least five substantially equal periodic payments (SEPPs). The amount of the payments depends on the owner’s life expectancy as calculated through IRS-approved methods. You must also withdraw these funds according to a specific schedule, and the IRS offers three different methods for calculating your specific withdrawal schedule. You must adhere to the payment schedule for five years or until you reach age 59 1/2, whichever comes later (unless you are disabled or die).”

Even though the 72(t) rule allows you to withdraw funds from your IRA or 401k accounts in your 50s, there’s a couple of problems with using this rule:

• If you mess up the calculations or withdraw the wrong amount, it could cost you thousands in additional taxes and IRS penalties
• It’s really inflexible - you generally must continue payments and can’t stop or change them even if later you change your mind or your circumstances change. 

So if you can avoid taking early withdrawals from tax-deferred retirement accounts, it’s best to avoid this. However, tomorrow, I’m going to tell you about a client who had no choice, had to start withdrawals from 401k accounts early, but we found a workaround that didn’t involve 72(t) distributions. 

That’s it for today. Thanks for listening! My name is Ashley Micciche and this is the Retirement Quick Tips podcast. 

---------

>>> Subscribe on Apple Podcasts: https://apple.co/2DI2LSP

>>> Subscribe on Amazon Alexa: https://amzn.to/2xRKrCs

>>> Visit the podcast page: https://truenorthra.com/podcast/ 

----------

Tags: retirement, investing, money, finance, financial planning, retirement planning, saving money, personal finance