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Taking Annuity Income at Age 55? What You Need to Know About Rule 72(t)

Taking Annuity Income at Age 55? What You Need to Know About Rule 72(t)

If you’re like most people, you might find yourself dreaming about retirement. Long, lazy days spent lounging on the beach, playing a daily round of golf, or even volunteering at a favorite charity – when you’re retired, your time is your own. What you may not be thinking about is IRS Rule 72(t). But you should be – especially if you plan to retire early.

Unfortunately, without an ample amount of income to pay for your housing, transportation, utilities, and other expenses, the dream of retirement will remain just that – a dream.

On the other hand, you may have enough money saved to say goodbye to your employer long before you’re even old enough to start collecting your Social Security retirement income benefits. If this is the case, though, you need to be sure that you don’t lose a significant chunk of your income to Uncle Sam in the form of early withdrawal penalties.

One way to keep from incurring an early withdrawal penalty on your retirement account withdrawals if you’re at least age 55 is by following the rules of the IRC (Internal Revenue Code) Section 72(t).

What is Rule 72(t) and How Does It Work?

Rule 72(t), as issued by the IRS, allows penalty-free withdrawals from IRA accounts – as well as from other tax-advantaged retirement plans, like 401(k)s – provided that the account holder makes at least five “substantially equal periodic payments” (or SEPPs). The amount of these payments is dependent on your life expectancy, which is determined through an IRS formula.

By following Rule 72(t), you can essentially benefit from your retirement savings before you turn age 59 ½, yet without incurring the IRS early withdrawal penalty of 10%. (It is important to note, though, that while you won’t have to pay the 10% penalty, your withdrawals can still be subject to income taxation.)

How to Set Up Your Retirement Income Stream at Any Age

Regardless of what age you retire, you will likely require an ongoing income stream that you can count on for paying your basic living expenses, as well as for non-essentials such as travel and entertainment.

One of the best ways to ensure the protection of your principal – while at the same time providing you with a vehicle that will generate future income that you can count on – is through the purchase of a fixed or fixed indexed annuity.

Today, there are a lot of annuities to choose from, though, so it can be difficult to determine which one will offer you the best benefits for your specific needs. With that in mind, it can be helpful to rely on an annuity specialist to help you wade through all of the “fine print,” and to narrow down the right annuity for your specific needs and goals.

If you’ve got questions about annuities, we’ve got answers.

At Annuity Gator, our mission is to educate consumers about how and where an annuity may – or may not – fit into your overall financial plan. Based on our in-depth research, we offer an annuity review database that is chock full of information and can help you with narrowing down which annuity is right for you – or even whether or not an annuity will fit into your financial plan at all.

Have more questions about how taking withdrawals from your annuity can avoid the IRS early withdrawal penalty – even if you’re under the age of 59 ½? If so, just give us a call at (888) 440-2468. Or, you can email us through our secure online contact form and schedule a time to talk one-on-one with an annuity research specialist.

Taking Annuity Income at Age 55? What You Need to Know About Rule 72(t)

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