Using 72(t) to avoid 10% penalty, how much can I withdraw from 401k per year? What are the main disadvantages for doing this?

Question

Imagine this scenario, I'm 40 years old, unemployed, and have 1M in my 401k. If I want to use 72(t) to withdraw money from my 401k, to avoid 10% penalty.

What is the maximum amount that I can withdraw per year? And what are disadvantages for doing that?

Answer 1

There are 3 ways to calculate distributions

• amortization
• annuitization
• minimum distribution

According to investopedia

• amortization will give you the largest distributions
• minimum distribution will give you the smallest distributions
• annuitization will give you a middle amount

You can switch which method you use to calculate your distributions but you can only do that once. Once you switch you're stuck until you finish the rest of the distributions.

A disadvantage is that you are required to take these for the longer of 5 years or until you are 59.5 years old, you cant choose to stop later if your situation changes.

Here is an online calculator