72(t) Payments Calculator: the facts

1. Withdrawals from a retirement account before 59½ carry a 10 percent additional tax, with exceptions; one is a series of substantially equal periodic payments over your life expectancy (§ 72(t)(2)(A)(iv)).
2. Three methods are allowed: the required-minimum-distribution method (balance over life expectancy, recomputed each year), fixed amortization (a level payment over life expectancy at a chosen rate), and fixed annuitization (Notice 2022-6 § 3.01).
3. The rate may be anything up to the greater of 5% or 120 percent of the federal mid-term rate (§ 3.02(c)); the 5% floor means a higher payment is always available without checking the month's rate.
4. Example: $500,000 at age 50, on the Single Life Table (36.2 years) at 5%: about $30,156 a year by amortization, or $13,812 in the first year by the RMD method.
5. Once begun, the series must continue for the later of 5 years or reaching 59½; change it, and the 10 percent tax is owed on every payment back to the start, with interest (§ 72(t)(4)). At 50 that is 10 years of payments.
6. A one-time switch from either fixed method to the RMD method is allowed, which is the escape hatch when the account falls and the fixed payment is too high.

Educational only, not investment, tax, or legal advice. Results are hypothetical estimates that vary with each use and over time and are not guaranteed accurate or complete. Using this tool creates no client relationship with Considerate Capital, and the site that linked here is not affiliated with it. By using it you agree to the tool terms.