Menu ≡

Our Blog


Piggy bank next to clock and quarters.

What You Need to Know About Removing Money Before Retirement

January 17, 2023

Is it possible to take distributions from my retirement account before retirement age (59 ½) penalty-free?

The IRS 72(t), also known as the Substantially Equal Periodic Payment rule, allows individuals to withdraw funds from their retirement accounts without penalty before reaching the age of 59 ½. This rule applies to qualified retirement plans, including IRAs, 401(k)s, and 403(b)s. Here are some features and benefits of the IRS 72(t) that you should consider:


Penalty-free withdrawals: Under the IRS 72(t), individuals can withdraw funds from their retirement accounts without incurring the 10% early withdrawal penalty that usually applies to withdrawals made before age 59 ½.

Three methods of calculation: Individuals can choose from three different methods of calculating their payments, including the Required Minimum Distribution (RMD) method, the Fixed Amortization method, and the Fixed Annuitization method. Each method has its advantages and disadvantages, so it is essential to consult a financial advisor to help choose the most appropriate one.

Life expectancy calculation: The number of payments is calculated based on the individual's life expectancy or the joint life expectancy of the individual and their designated beneficiary. The IRS uses actuarial tables to determine life expectancy, which considers factors such as age, gender, and marital status.

No limit on withdrawal amount: There is no limit on the amount individuals can withdraw under the IRS 72(t) as long as the amount is calculated using one of the approved methods.


Access to retirement funds: The IRS 72(t) provides individuals with a way to access their retirement funds before reaching the age of 59 ½ without incurring the 10% early withdrawal penalty. This can be beneficial if they need the money for an unexpected expense or if they want to retire early.

Predictable income stream: Under the IRS 72(t), individuals receive a predictable income stream for the duration of the payment period. This can help them plan their budget and ensure they have a steady stream of income.

Lower tax liability: By spreading out their withdrawals over a period of time, individuals may be able to reduce their tax liability. This is because they will be taking smaller withdrawals each year instead of a large lump sum that could push them into a higher tax bracket.

Avoiding penalties: By following the rules of the IRS 72(t), individuals can avoid the 10% early withdrawal penalty that would usually apply to withdrawals made before age 59 ½.


Withdrawals must continue for at least five years or until age 59 ½: Once an individual starts taking payments under IRS 72(t), they must continue taking them for at least five years or until they reach age 59 ½, whichever is later. If they stop taking payments before then, they will be hit with a 10% early withdrawal penalty on all payments received.

No flexibility in payment amounts: Once individuals start taking payments under the IRS 72(t), they cannot change the number of payments. They must continue to receive the same amount each year until the end of the payment period.

Withdrawals are taxable: Although the payments received under the IRS 72(t) are penalty-free, they are still subject to income tax. The amount of tax owed depends on the individual's tax bracket and the number of payments they receive.


The IRS 72(t) can be a valuable tool for individuals who need access to their retirement funds before reaching the age of 59 ½. However, it is essential to understand the rules and restrictions that apply to this provision. Consulting a financial advisor can help individuals navigate this process and choose the most appropriate method of calculating their payments.




About the Author

Farm and Community Asset Advisors LLC, is a California-based Financial Planning firm specializing in the retirement planning and healthcare space, particularly with cannabis and more traditional businesses, as well. Founder Neil Gavande has extensive experience in the Cannabis space as a licensed operator, along with helping other licensed cannabis businesses nationwide with their planning needs.


Connect with us on FacebookLinkedIn, and Twitter!

For tips and information regarding retirement plans, contact us.

How to Get a Loan in Retirement

There's more where that came from!
We have answers to all your retirement planning questions. Check out the rest of our blog content below.

Back To The Blog

person with farmers hat standing in front of cannabis field.

2023 Cannabis Industry Updates

The Leading Cannabis 401(k)

Is your cannabis company considering retirement benefits? All of our cannabis-related content can be accessed here.


Invest In A Bitcoin 401(k)

Interested in buying bitcoin but don't know where to start? Find out about investing in Digital Assets through a 401(k) plan here.


The ROBS Strategy

Starting a business while you're strapped for cash? Learn more about the ROBS Business Financing Strategy here.


Back to the Blog

Website Design