Hello and welcome to Moneygirls Quick and Dirty Tips for a richer life.

I'm your host Laura Adams. In this episode I'll discuss a legal way to make early

withdrawals from your retirement account without having to pay an early

withdrawal penalty.

When it comes to saving for retirement, you can't beat government-sponsored retirement accounts.

If you're a regular money girl listener, you already know about the great tax advantages you receive

for keeping your money in a retirement account until you're 59 and a half years old.

But what happens if you need to get your money out of a retirement account before you retire?

Early withdrawals are usually not a good idea because there's a steep 10% penalty to pay,

except in certain qualified situations, such as distributions for first-time homebuyers,

education expenses, and medical hardships.

However, there's a little-known legal loophole that you can use to avoid the early withdrawal penalty.

Before you consider this option, realize that it comes with restrictions and risky consequences.

The loophole for early withdrawals that I'm talking about is called a 72T payment plan.

The name comes from its numbered section of the IRS tax code.

72T's are also known as substantially equal periodic payments,

and they can generally be used with retirement accounts such as IRAs, 401k's, and 403b's.

Here's how 72 payments work. You can set up a plan to take

equal monthly or annual distributions out of your retirement account. The amount of

money you can take out is calculated using an accounting method that's approved by the IRS.

The payment amount depends on various factors, such as your retirement account balance, age, life expectancy, as well as the age and life expectancy

of your account beneficiary.

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