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Columns: Dr. Don
Don Taylor, Ph.D., CFA, CFP   Expert: Don Taylor, Ph.D., CFA, CFP
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Two scenarios allow for withdrawals
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72(t) lets retirees tap 401(k) early

Dear Dr. Don,
I am 57 and I have a 401(k) plan account. If I decide to take an early retirement, am I able to receive fixed monthly benefits for five years and incur no penalty?
-- Joy Juncture

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Dear Joy,
There are at least two scenarios that allow you to take distributions from your 401(k) prior to age 59½ and incur no penalty for the early distribution. The one you are referring to is known as a 72(t) distribution from an IRA rollover account.

Once a rollover from the 401(k) to the IRA is completed and a 72(t) distribution is set up to pay an income stream, that stream has to continue for a minimum of five years or to age 59½, whichever comes last. Because you're 57, that means you would have to continue a 72(t) distribution started at age 57 to at least age 62.

Alternately, if you are separating from service with your employer on or after age 55, you can take 72(t) distributions from your 401(k) plan without first having to move the money via an IRA rollover. For more information, see the IRS document "Topic 558 -- Tax on Early Distributions from Retirement Plans."

The Bankrate "72(t) calculator: Early withdrawals from retirement accounts" can help you estimate your distributions. My best advice is echoed on the calculator page and that is that you work with your tax professional to size these distributions. Making a mistake in this area is too costly not to seek out professional tax advice.

Bankrate.com's corrections policy -- Posted: Jan. 30, 2008
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