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Secret IRS Rule 72(t)! | Eric Cooper Shares Early Withdrawal Hack!
Forget About Money
Understanding the 72T Retirement Account Rule and Changes in 2022
The 72T rule allows certain retirement accounts, including 401K, 403B, 457B, and IRAs, to make penalty-free withdrawals under specific conditions. In 2022, changes to this rule increased its attractiveness, adjusting the interest rate used for calculating distributions. Previously limited to 120% of the federal midterm rate, the new rule sets a minimum rate of 5%, providing a more favorable calculation for retirees. This means a smaller investment can yield larger withdrawals, enhancing the value of the funds. When moving money from a 401K to an IRA, individuals set up their 'bucket' for the 72T withdrawals, enabling annual distributions based on the calculated rate. For example, transferring $300,000 could allow for $20,000 annual withdrawals, contingent on the applicable interest rate. Additionally, individuals can create multiple 72T accounts by moving funds to separate IRAs, thereby layering their income potential while being taxed based on total income. This flexibility offers significant opportunity, particularly for those in lower income tax brackets.
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