Rule of 55 VS 72T

Any additional insights on the difference between Rule of 55 and 72T??

Rule of 55 – an employee who retires, quits or is fired at age 55 or after can withdraw without penalty from their 401K. It must be a 401k – cannot be an IRA.

72T – Distributions can occur at any age, calculating life expectancy and use that to calculate 5 substanitally equal payments from a retirement plan for 5 years in a row before the age of 59 1/2. Can this be from a 401k OR IRA???



  • The age 55 penalty exception applies to qualified plans such as a 403b or 401k and also to defined benefit pensions. It is automatic, and superior to a 72t plan since it has no amount or timing requirements. But one drawback is if the plan only allows lump sum distributions instead of flexible annual distributions, the penalty waiver is offset by a higher marginal tax rate caused by the lump sum distribution.  Such a restriction often forces taxpayers to establish a 72t plan to attain the penalty waiver.
  • A 72t plan is rather inflexible and must run the longer of 5 years or to age 59.5. While qualified plan distributions can be used, it is preferable to use an IRA for these payments because there is more control over the IRA distributions, and this avoids the risk of mergers and other changes to the qualified plan that may upset the 72t distribution requirement. A direct rollover to an IRA is therefore recommended, where the IRA can then be partitioned into accounts with the balance needed to generate the distribution amount needed.

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