72(t) payments: taking money from an IRA before 59½ without the 10% tax, and what can go wrong.

If you want to stop working before 59½, the 10% tax on pre-tax money is the first thing in the way. One of the IRS's exceptions is a 72(t) schedule: a set of roughly equal payments you commit to for years. It can work, and it is easy to get wrong, so here is how it is built, what it would pay on a sample account, and exactly what the IRS says breaks it.

What is 72(t), and why does anyone use it?

Money taken from a traditional IRA or 401(k) before age 59½ usually carries a 10% additional tax on top of income tax. The IRS says early distributions are generally those received before age 59½ (Topic no. 557 for IRAs, Topic no. 558 for employer plans). Section 72(t) lists exceptions, and one of them is a series of substantially equal periodic payments, often called a SEPP or a 72(t) schedule. If you take roughly equal payments by one of three IRS-approved methods, the 10% tax does not apply to them. That is why people who plan to stop working in their 40s or 50s look at it: it is a way to draw on a pre-tax account before 59½ without the penalty.

The price is a commitment. The IRS says the payments must continue until the later of five years after the first payment and age 59½ (IRS FAQ, Q&A 2 and 13). Someone who starts at 50 is committed for ten years, to 59½. Someone who starts at 57 is committed for five.

What are the three methods?

IRS Notice 2022-6 describes them in section 3.01. All three start from the account balance and a life-expectancy figure.

• Required minimum distribution method. Each year the payment is the account balance divided by a number from a life-expectancy table, recalculated every year. It usually pays the least, and the amount changes as the balance does.
• Fixed amortization method. The payment is the level amount that would pay off the balance over a number of years from the table at an interest rate you choose, within a limit. It is worked out once, and the same dollar amount is paid every year.
• Fixed annuitization method. The payment is the balance divided by an annuity factor built from IRS mortality rates and the same kind of interest rate. It is also worked out once and then fixed.

For the required minimum distribution and fixed amortization methods you choose one of three tables: the Uniform Lifetime Table, the Single Life Table, or the Joint and Last Survivor Table. Both fixed methods are set when you start; the first-year amount comes from the balance on a date you can reasonably pick, and the IRS treats the balance on any date from December 31 of the year before the first payment up to the first payment as reasonable (Notice 2022-6, section 3.02(d)).

What would a schedule actually pay?

Here is a $1,000,000 IRA owned by a 50-year-old, run through Runway's calculator for each method, each of the two single-person tables, and two interest rates: the highest the IRS rules allow for a start in December 2026 (6.11%) and 5%. The payments would run for 10 years, ages 50 through 59. In the table, Uniform means the Uniform Lifetime Table and Single means the Single Life Table.

The range is wide: from $20,619 a year to $69,184 on the same account. The Single Life Table gives a shorter number of years than the Uniform Lifetime Table (36.2 years against 48.5 at age 50), so the amortization method pays more with it. A higher interest rate also pays more under the fixed methods. The annuitization method does not use either table, so its figure does not change between them. Which combination is right for a particular person is exactly the kind of question for a tax professional, because a bigger payment also means bigger taxable income and a faster draw-down of the account.

How high can the interest rate be?

For the two fixed methods the rate can be any rate that is not more than the greater of 5% or 120% of the federal mid-term rate, for either of the two months immediately before the month the payments begin (Notice 2022-6, section 3.02, interest rates). The IRS publishes that rate each month in a revenue ruling. The 120% mid-term rate for October 2026 is 5.54% (Rev. Rul. 2026-19) and for November 2026 it is 6.11% (Rev. Rul. 2026-21). A schedule starting in December 2026 could therefore use up to 6.11%. The figure changes every month, which is why Runway's calculator says which months it used.

Rate status, as of October 31, 2026: the latest rates the IRS has published are for October 2026 and November 2026. It usually publishes the next month's ruling in the middle of the month before, and that ruling sets the cap for a start in January 2027, so this page is updated when it appears.

What counts as a modification, and what does it cost?

This is where schedules go wrong. The IRS says that changing the payment amount, other than because of death or disability, ends the exception. The 10% additional tax then applies to that year's distributions, and there is a recapture tax equal to the 10% tax that would have applied to the earlier years' payments, plus interest (IRS FAQ, Q&A 9 and 10). Notice 2022-6, section 3.02(e), adds that the following are modifications too: any addition to the account balance other than investment gains, a transfer of part of the balance to another retirement plan, or a rollover of the amount received.

To see the size of it, take the largest fixed payment above, $69,184 a year. Suppose someone takes five payments, ages 50 to 54, and then takes a different amount at 55. Five payments total $345,920, so the recapture alone is 10% of that, $34,592, plus interest. The 10% on the change year's own distributions ($6,918 if it were the same $69,184) is on top of that. This is arithmetic on the example, not a prediction for anyone's situation.

There are limits to the harshness. The IRS does not treat it as a modification if the account runs out of money while following the method and the last payment is smaller (Notice 2022-6, section 3.03(a)). It also allows a one-time switch from a fixed method to the required minimum distribution method, after which any further change is a modification (section 3.03(b)).

What else do you need to know before looking at one?

• One schedule covers one account. The IRS says each schedule applies to a single account, and balances from several accounts cannot be combined (IRS FAQ, Q&A 6).
• Employer plans have an extra condition. For a 401(k) or similar plan, the IRS says you must separate from service with that employer before the payments begin (Topic no. 558).
• It is not the only way to reach money early. The IRS lists other exceptions to the 10% tax (retirement topics: exceptions). One is separation from service in or after the year you reach 55, which applies to employer plans but, according to that page, not to IRAs. Another path is not touching the pre-tax account at all and spending cash, brokerage or Roth money first, which is how Runway orders withdrawals (which account to withdraw from first).
• The payments are taxable income. Avoiding the 10% additional tax does not avoid income tax, and a large payment can affect other things that depend on income, such as marketplace health-insurance subsidies before Medicare.

How does Runway model it?

On the Accounts step, each traditional account has an educational 72(t) panel. It shows what the three methods would pay on that account, the interest-rate cap and where it comes from, and the risk of a change. If you choose one, the plan treats the payment as taxable income taken before anything else is drawn, sends any surplus over spending and tax to a taxable account, and holds a fixed amount level in dollars. It also warns when the plan draws extra from that account, converts money out of it, keeps saving into it, or runs it dry. It stops the payments if the owner dies in the plan.

Here is the effect on one household: a 55-year-old retiring now with $800,000 in an IRA, $100,000 in a brokerage account, $50,000 in cash and spending of $50,000 a year, filing single, planning to 90. All of these use the same assumptions as the rest of Runway.

Without a schedule, the plan spends cash and the brokerage account first and then has to draw from the IRA at 57 and 58 and pays $7,848 of 10% tax. With either schedule the 10% tax is $0, because the payments are exempt and the plan does not need to draw anything else from the IRA before 59. The chance the money lasts barely moves; a gap of a few points is within the noise of 2,000 simulated markets. What changes is where the money comes from and how much taxable income each year has. Runway shows this as an illustration, not a recommendation.

How were these numbers calculated?

• Tables and rules: the Uniform Lifetime Table is Appendix A of Notice 2022-6; the Single Life Table and the mortality rates are from Treas. Reg. section 1.401(a)(9)-9. The methods and the interest-rate rule follow Notice 2022-6 section 3.
• Conventions: amortization is computed with payments at the end of each year and annuitization with payments at the start of each year, as the notice describes it. Other professionals may use slightly different conventions, so a real schedule should be computed by one. The commitment window is shown in whole years: payments at ages 50 through max(start age + 4, 59).
• Rates: the October 2026 and November 2026 120% mid-term rates, annual compounding, from Rev. Rul. 2026-19 and Rev. Rul. 2026-21, as of October 31, 2026.
• The plan example: Runway's deterministic projection for the early-withdrawal tax and 2,000 simulated market paths (same seed for each) for the chance the money lasts; federal tax only, 60% stocks, Social Security claimed at 67, a long-term-care cost late in life.
• Not included: the Joint and Last Survivor Table, the retroactive tax itself (Runway warns instead of charging it), and state tax.

Frequently asked questions

What is a 72(t) distribution?

A 72(t) distribution is a series of substantially equal periodic payments from a retirement account that avoids the 10% additional tax on early withdrawals before age 59½. The payments must follow one of three IRS methods and continue until the later of five years after the first payment and age 59½. They are still taxable as ordinary income.

What are the three 72(t) methods?

The required minimum distribution method recalculates the payment every year from the balance and a life-expectancy figure. The fixed amortization method and the fixed annuitization method each work out one dollar amount at the start and pay it every year. IRS Notice 2022-6 describes all three.

How long do 72(t) payments have to continue?

Until the later of five years after the first payment and age 59½. Someone who starts at 50 is committed for about ten years, and someone who starts at 57 for five.

What is the highest interest rate allowed for a 72(t) schedule?

For the fixed methods, any rate not more than the greater of 5% or 120% of the federal mid-term rate for either of the two months before the first payment. The 120% mid-term rate was 5.54% for October 2026 and 6.11% for November 2026.

What happens if you change a 72(t) schedule?

The IRS treats it as a modification. The 10% additional tax applies to the year's distributions, plus a recapture tax equal to the 10% that would have applied to earlier years' payments, plus interest. Adding money to the account, moving part of it to another plan, or rolling over a payment are also modifications. Death and disability are exceptions, and a one-time switch from a fixed method to the required minimum distribution method is allowed.

Does Runway give 72(t) advice?

No. Runway shows how 72(t) schedules work as an educational illustration. It is not tax, legal or financial advice, and Runway is not responsible for tax or legal outcomes. A qualified tax professional should check any schedule before you start one.