560: Dude ACTUALLY Withdraws From His 401(k) and Retires at 47
BiggerPockets Money Podcast
Leveraging the 72T Option for Early Retirement Withdrawals
The 72T option is a valuable strategy for individuals with well-funded retirement accounts who wish to retire early, allowing for penalty-free withdrawals from IRAs and 401(k) accounts before age 59.5. Under IRS regulations, account holders can avoid the usual 10% early withdrawal penalty by adhering to specific rules. To qualify, one must take distributions for at least five years or until reaching age 59.5, whichever is later. The withdrawal amount can be calculated using three IRS-approved methods: amortization, minimum distribution, and annualization, each providing different payout sizes. It's crucial to choose the right calculation method, factoring in the applicable interest rate, limited to either a minimum of 5% or 120% of the federal midterm rate. Examples illustrate the impact of careful planning, such as opting for the amortization method for a fixed annual payout. However, users should be mindful of tax implications since the withdrawn amount is added to ordinary income and subject to taxation, although the early withdrawal penalty is waived when utilizing the 72T option.
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