Early Retirement
For many fortunate individuals, early retirement is a very viable option and, with careful planning, it is something that can be executed without depleting one's assets prematurely. There are a number of options that allow one to gain access to their retirement accounts and qualified plans prior to reaching the 59.5 years-of-age threshold, commonly referred to as early withdrawals. Typically, if one takes an early withdrawal from a fixed-term investment, the owner or participant in that plan may be subject to an early withdrawal penalty, which serves as a deterrent for those seeking short-term access to their retirement funds. However, what happens if you legitimately have enough savings to retire before such pre-determined time horizons?
Substantially Equal Periodic Payments - SEPPs [IRS rule 72(t)]
A frequently used method of avoiding early withdrawal penalties is through the use of IRS rule 72(t) commonly known as Substantially Equal Periodic Payments or SEPPs. Funds that are withdrawn early from a retirement account or qualified retirement plan are placed in a separate account that distributes equal payments to the owner or participant annually over the course of five years or until the individual turns 59.5, whichever comes last. Although electing to take SEPPs waives your funds of the typical 10% penalty, you are still subject to ordinary income tax on distributions.
There are three methods for calculating SEPPs including:
- Minimum Distribution Method
- Fixed Amortization Method
- Fixed Annuitization Method
With our expert advice we can aid you in navigating the rules and helping you determine which distribution method meets your needs.
Early Retirement and Non-Qualified Annuities - 72(q)
Similar to IRS rule 72(t) you are able to utilize SEPPs with taxed-deferred funds within a Non-Qualified Annuity under IRS rule 72(q).
Dynamic Wealth advisors are experts in retirement planning and have a plethora of resources to assist you at correctly and effectively meeting your retirement planning needs. Please contact us now to learn more details on how you can maximize your retirement accounts utilizing SEPPs and other retirement tools.
IRC Sections 72(t) and 72(q) involve complex tax code; therefore, this information is not intended to be tax/legal advice.
Please consult your tax/legal professional for details regarding each specific situation. Tax information can be sourced at www.irs.gov. Because investors' situations and objectives vary, this information is not intended to indicate suitability for any particular investor.