can anyone direct me in the right path where I can take early ira distributions without paying 10%irs penalty?

Question

I am currently 31 yrs old and would like to start taking annual distributions from my ira, I know that i can by rule72t in the irs guidelines, I am wanting to know which mutual funds or possibly variable annuity would let me take out early distributions using rule72t?

Answer 1

From what I have read, you must actually quit working to take these penalty free. And then if you start working again, the penalty may be re-assessed at that time.

I would go talk to a tax guy to make sure you have your assumptions correct.

Answer 2

Ted,

No financial institution has a product that can circumvent the 10% rule. However, if you take "substantially equal payments over a period of not less than 5 years", you can remove money from an ira without penalty, but still subject to regular income tax.

Good Luck,
Dana B.

I would generally defer to Randy's answer that follows, although there is/are exception(s) to the A 59 1/2 rule.

Answer 3

Warning -- I am no expert. Just someone who has done a little investigation of the topic on their own. And, as you know, a little knowledge can be a dangerous thing.

According to Publication 590 ( http://www.irs.gov/pub/irs-pdf/p590.pdf ):

"There are two other IRS-approved distribution methods that you can use. They are generally referred to as the "fixed amortization method" and the "fixed annuitization method." These two methods are not discussed in this publication because they are more complex and generally require professional assistance. See Revenue Ruling 2002-62 in Internal Revenue Bulletin 2002-42 for more information on these two methods."

That document can be found here: http://www.irs.gov/pub/irs-irbs/irb02-42.pdf

Further related to the amortization rate, according to these FAQ responses, it was my impression that the amortization rate could not be more than 120% of a rate they establish:

http://www.irs.gov/retirement/article/0,,id=103045,00.html#7
http://www.irs.gov/retirement/article/0,,id=103045,00.html#8

A list by month of documents that contain the rate can be found at:

http://www.irs.gov/taxpros/lists/0,,id=98042,00.html

For example, the February, 2007 rate is at:

http://www.irs.gov/pub/irs-drop/rr-07-09.pdf

However, I think Dana's comment may be misleading. If I am reading Publication 590 correctly:

"The payments under this exception must generally continue until at least 5 years after the date of the first payment, or until you reach 59 1/2 years of age, whichever is later."

So, if you are 31, that would mean to me that you have to continue doing withdrawals until you turn 59 1/2, since that is LATER than the 5-year period.