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72(t) Early Income Distribution

If a client is retiring early, laid off, or needs emergency income, and plans on taking retirement distributions early, "72(t)" withdrawals from IRAs may be a smart source of income. 72(t)s enable individuals if they are under age 59½ to

  • draw money from retirement assets without a 10% penalty tax
  • protect remaining assets from current taxes
  • preserve the tax-deferred status of earnings

How 72(t)s work
Your clients can take advantage of 72(t) penalty-free withdrawals by rolling over eligible retirement plan assets into new and/or existing IRAs. Here’s how it works:

  • Withdrawals must be made at least annually for five years or until age 59½, whichever is later.
  • The withdrawal amount is based on one of three standard IRS formulas: life expectancy, ammorization, or annuity. Your client should consult a tax adviser prior to selecting an IRS formula as an incorrect calculation or changes in the formula or dollar amount may trigger a 10% federal tax penalty on all amounts withdrawn. However, if the amortization or annuity formula is initially chosen and your client decides to reduce the annual withdrawal, he or she has a one-time option to switch to the life expectancy formula without incurring penalties.

MFS does not provide legal, tax or accounting advice. Any statement contained in this communication (including any attachments) concerning U.S. tax matters, was not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. This communication was written to support the promotion or marketing of the transaction(s) or matter(s) addressed. Clients of MFS should obtain their own independent tax and legal advice based on their particular circumstances.

Keep in mind that all investments, including mutual funds, carry a certain amount of risk including the possible loss of the principal amount invested.

You should recommend products based on your client's financial needs, goals, and risk tolerance.