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Accessing My 401k By Age 40 – 72t Method

There are many ways to access your retirement money. And some fear that if they lock up their money into retirement accoutns, such as 401k or 457’s, then they’ll never be able to access it. But that’s not true, and so I’ll mention the 72t methd and the SEPP method here, as examples.

The majority of doctors are familiar with 401k’s. They know it is a way for them to set aside money for their retirement, which doesn’t get taxed initially. It lowers their income tax bill and grows tax-free. Often, they are first exposed to it in residency and may know it as a 403b or a 457, all pretty much the same concept. Called qualified accounts, defined contribution plans or simply retirement plans… the idea is that you get a tax-break for putting money away for your retirement, which cannot be accessed before age 59.5, otherwise you are penalized with a 10% backhanded tax-slap (the 457 is an exception to this rule).

So, the IRS thinks that it should be the governing body which determines when you retire… sure, if this was China, Iran or Egypt (or what’s left of it) I could understand, let’s oppress the masses, silence the dissidents and rule by fear. We have gay marriages but I gotta take a shot in the face if I want to retire early… nice. Or wait… could it be because the government just wants to force people to invest their money on wall street? nah, no way.

The simple concept of this post is that you can quite easily access your money before age 59.5 without having to pay the 10% penalty. Yes, you have to do some paperwork to use the 72t method. A little number finagling and appropriate record keeping but… if you don’t wanna do that you can punt the job off to your financial adviser much like you have your nurse perform the manual disimpaction of the 315 lb. 80-year-old lady with the code-brown in hallway 2.

Example 1: $500k In Your 401k

You’re done with working, you’re sick of it, you can’t look at another normal throat… your compassion has dwindled as low as your libido and you want to call it quits. You have a little in your private savings account but you have a fat-ass chunk in your employer sponsored 401k, $500k to be exact… all invested in some index fund.

Your next step is to request a rollover of the 401k to an IRA either through the same institution that is holding your money or to some other brokerage house. You can buy the same funds or different funds… nothing fancy happened here, you didn’t get taxed, no fees were deducted, you didn’t get violated. You now have $500k sitting in an IRA collecting dividends and either going up or down in value depending on the economy.

You can use one of many online calculators (I’m using my favorite from to determine how much money you can withdraw without getting hit with that 10% penalty. You figure out which method you want to use, Life Expectancy, Amortized Life Expectancy, Annuitized Life Expectancy (don’t bother looking into these too much until you’re ready to set up your SEPP, they are pretty straight-forward) and you enter an appropriate interest rate calculated off of the federal mid-term rate. See the examples below.

It’s not that hard… you got the $500k in the IRA, you pick one distribution method from the 3 options above, you pick an interest rate. Let’s say you take $15,707 every year or $1,309 every month. That’s it, you are stuck with that payment until you hit 59.5. The value will change depending on which method you use, depending whether your investment continues to grow and whether federal mid-term rates change.

Then comes the fun part, you get to report that $15,707 as income. Doing a quick federal and state income tax calculation, you would end up owing $1,520 to Uncle Sam… that’s using a standard deduction, if you itemized you would probably owe less. In the end, you are left with $14,187/yr using the method above.

No, you can’t add to that specific IRA account any longer once it’s set-up to pay you out under the 72t rule of the IRS. The payments are referred to as SEPP (Substantially Equal Periodic Payments).

No, you can’t withdraw any more from the IRA account to put into another IRA account once you started SEPP.

Yes, if you stop the SEPP you will be hit with the 10% tax penalty and you will owe interest on money owed.

Yes, if you don’t need the SEPP then you can reinvest it in whatever the shit you want.

Yes, your IRA will likely keep growing if it’s invested properly in index funds. Since you are taking off somewhere around 3-4% off the top your initial $500k that was invested may even grow.

Yes, you will be taxed on this income. So if you are already making a shit-ton of money being the baller doctor that you are then you don’t want to do this until you are in a lower tax-bracket.

Example 2: $500k In Your 401k But You Don’t Wanna Use All Of It For SEPP

OMG, what if I change my mind?? I can’t stop the SEPP?? My life would end. Okay, drama queen, calm down. Here is another option for you (I’m pretty much talking to myself when I say this). One can take $250k or $100k or whatever the shit arbitrary amount you want and transfer that to a different IRA account. You can then setup SEPP from that one account only, tying up that specific amount and not your entire IRA or 401k.

You would be left with 2 different IRA accounts. One is locked under the SEPP and you can’t touch it or really make changes to it. It will keep paying you out money until you hit 59.5 or until the account is depleted.

The other account will be a traditional IRA and you can do whatever you want with it. That’s the beauty of the 72t rule, it is account specific.

The Practical Steps To Getting This Done

Really not much to it. You can request however much you want from your IRA account and the financial institution that is holding your account will gladly pay it out to you. The IRS will then come back and say “Yo homie! You trippin’? WTF you doing taking money out before age 59.5?!”. Unless of course you are age 59.5 or you have set up SEPP and as long as the SEPP is within the guidelines of the methods outlined above.

If you make a mistake on the calculation the entire process of SEPP could be affected, so really, it’s important to get it right. It’s math, come on now, how hard can it be?

So, you download a form (no, you won’t, you’re probably just using TurboTax) called Form 5329 and you fill that out every year when you do your taxes. That way the IRS knows that even though you are pre-pubescent, IRS-wise, you are still legit taking those moneys out of your IRA.

That’s It… Not Bad Right?

It’s a bit of a headache, not as straightforward as requesting a bank transfer online. However, your financial adviser should be able to help you with it though I highly recommend you keep a VERY watchful eye over it because the only person who would be grabbing ankle if this isn’t done right is you.

If it’s done wrong is it the end of the world? Fuck no! You owe a little back-tax and some interest on money you’ve owed. I promise you won’t die from such a mistake.

So… how much could I get out of my investments? I got somewhere around $300k in 401k’s from different employers. Assuming that my money stopped growing (unlikely) then I could withdraw $10,169/yr from this account until age 60 and still have $180k left by then. Since $10k is only 3.4% of that money I can safely assume that my $300k will grow another 2% every year. So potentially, I would have $475k by age 60 sitting in that account even after taking these payments. 

Finally, if you would like to do some more reading, a great FAQ is published on

One reply on “Accessing My 401k By Age 40 – 72t Method”

Thank you so much! Great read and fun too 🙂
Finally someone answered all the questions I had.

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