1. What is the IRA 72t Distribution?

The IRA 72t distribution, also known as Substantially Equal Periodic Payments (SEPP), allows penalty-free early withdrawals from retirement accounts before age 59½. The payments must continue for at least 5 years or until age 59½, whichever is longer.

2. How Does the Calculator Work?

The calculator uses the IRA 72t distribution formula:

Where:

• \( IRA \) — Total IRA balance (dollars)
• \( Annuity\ Factor \) — Factor based on IRS life expectancy tables and interest rate

Explanation: The calculation divides your IRA balance by an annuity factor derived from IRS-approved life expectancy tables to determine your annual payment amount.

3. Importance of 72t Calculation

Details: Accurate calculation is crucial for maintaining compliance with IRS rules. Incorrect calculations can result in penalties for all previous distributions.

4. Using the Calculator

Tips: Enter your total IRA balance in dollars and the appropriate annuity factor from IRS tables. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What are the IRS-approved methods for 72t distributions?
A: The three methods are: Required Minimum Distribution (RMD) method, Fixed Amortization method, and Fixed Annuitization method.

Q2: How do I determine the annuity factor?
A: The annuity factor comes from IRS life expectancy tables and depends on your age and the chosen calculation method.

Q3: Can I change the payment amount once started?
A: Generally no - except for a one-time switch from the Fixed Amortization or Annuitization method to the RMD method.

Q4: What happens if I don't take the full payment?
A: Missing or taking less than the calculated payment may trigger the 10% early withdrawal penalty retroactively.

Q5: Are there exceptions to the 5-year rule?
A: If you start payments after age 54, you may be able to stop at age 59½ without completing 5 years.