The 72(t) Early Distribution Illustration helps you explore your options for taking IRA distributions before you reach 59½ without incurring the IRS 10% early distribution penalty. Internal Revenue Code (IRC) Section 72(t)(2)(A)(iv) defines these distributions as "Substantially Equal Periodic Payments". The IRS has approved three ways to calculate your distribution amount: annuitization, amortization and required minimum distribution.
You may choose any of the three methods on which to base your distribution amount. To avoid the 10% penalty once you begin distributions, you must continue to take the required distribution using the same method, at least annually, for the longer of five years, or until age 59½. Once distributions begin, if the series of payments is modified in any way, the 10% early distribution penalty will be imposed retroactively beginning with the first year of distribution. Exception: The five-year rule is waived upon death or disability of the IRA owner. It is also waived for IRA owners who make a one-time change from the amortization or annuitization methods to the required minimum distribution method.
For purposes of this analysis, the distribution amounts are shown as annual figures. However, you may choose to make withdrawals monthly, quarterly or semi-annually.
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RBC Capital Markets does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in consultation with your independent tax or legal advisor. No information, including but not limited to written materials, provided by RBC Capital Markets should be construed as legal, accounting or tax advice. This calculation is for illustrative purposes only and is based on the information you provided, results may vary. We are providing this illustration to assist you and your tax advisor in the determination of penalty-free distributions from your IRA. As explained by the IRS in Revenue Ruling 2002-62, the interest rate that may be used for calculating payments under the amortization and annuitization methods should be no more than 120 percent of the federal midterm rate for either of the two months immediately preceding the month in which distributions begin. The 72(t) Early Distribution Illustration automatically updates the applicable monthly interest rate to reflect the maximum rate allowed. There is no guarantee that the rate of return used for the calculations will be achieved. Distributions taken under IRC 72(t) must continue until you are age 59 1/2 or for five years, whichever is later. Please note, once payments begin, additional contributions and distributions, including annual contributions, transfers and rollovers of any kind, into or out of the account are prohibited.
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