Rule 72(t)

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Definition of 'Rule 72(t)'

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Rule 72(t) is a provision of the Internal Revenue Code that allows taxpayers to withdraw money from their retirement accounts before age 59 1/2 without paying an early withdrawal penalty. The amount that can be withdrawn each year is based on the age of the account holder and the account balance.

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There are a few requirements that must be met in order to use Rule 72(t). First, the account must be a qualified retirement plan, such as a 401(k), IRA, or 403(b). Second, the account holder must be at least 59 1/2 years old. Third, the withdrawals must be made in equal installments over a period of at least five years.

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The amount that can be withdrawn each year is calculated using the following formula:

A = P(r/n)^n


* A is the amount that can be withdrawn each year
* P is the account balance
* r is the annual interest rate
* n is the number of years over which the withdrawals will be made

For example, if an account has a balance of $100,000 and the annual interest rate is 5%, the maximum amount that can be withdrawn each year is $16,667.

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Rule 72(t) can be a useful tool for retirees who need to access their retirement savings early. However, it is important to note that there are some potential drawbacks to using this rule. For example, the withdrawals are taxed as ordinary income, and they may reduce the amount of money that is available for retirement savings.

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Before using Rule 72(t), it is important to consult with a financial advisor to discuss the pros and cons of this rule and to make sure that it is the right choice for your individual situation.

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