How to tap into your IRA at 55 without a penalty

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If you want to retire early, but don't want to pay the 10 percent early withdrawal penalty on your IRA, here's how to do it.

You can apply for 72(t) distributions to avoid the penalty. Under that plan, you agree to make equal periodic withdrawals for five years or until you reach age 59 1/2, whichever comes later.

If your retirement savings are in a 401(k), you would have to roll them over into an IRA in order to take advantage of the 72(t) options.

There are three methods for calculating the monthly distribution amounts that are approved by the Internal Revenue Service. Your tax professional will help you determine which plan to choose. Annual payments are set up for a 29.6 year life expectancy for 55-year-olds.

Here is an example of the withdrawal for a 55-year-old who has $250,000 in an IRA and wants to set up a 72(t). Under the Minimum Distribution Method, the monthly check would be about $703, which would be the least you could take. Under the Amortization and Annuitization Methods, it would be about $500 to $600 a month more than that.

Distribution amounts also vary according to the interest rate used in the calculations, which was 4.3 percent in this example.

If you would like to learn more about preparing for your retirement please call me at 630-232-9811 or drop me a note at


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Richard T. Dolbeare
KW Island Living - Lihue, HI
R(B), ABR, CRS...Hawaii Multi-Island Specialist

Of course it goes without saying that one better have lots of $$$ in the IRA in order to retire that early.  Another thing to keep in mind is that doing "nothing" isn't really that much fun.  Perhaps a 2nd career in a job that is fulfilling rather than a drudgery is an option worth consideration.

Jan 22, 2009 02:29 AM #1
Dean Akey
Saint Charles, IL

Excellent point Richard.  I have read several books on this topic and do believe that we will see many more seniors working part time in their retirement years. 

Jan 22, 2009 02:31 AM #2
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