On October, 3, 2002, the U.S. Treasury issued Revenue Ruling 2002-62, which contains new regulations pertaining to 72(t) payments.

Under IRS Revenue Ruling 2002-62 taxpayers can change from year to year their pension distribution amounts based on the value in the account from which the distributions are being made.

This means if you are receiving fixed payments from an IRA or retirement plan you can elect without penalty to receive smaller or bigger payments based on the value of your account as it changes from year to year.  

Background on 72(t) Substantially Equal Periodic Payments

To discourage you from receiving a distribution from your IRAs or qualified pension plans before you reach age 59½ the Internal Revenue Service imposes a 10% tax penalty on the amount withdrawn.

This penalty tax is in addition to the ordinary income tax that you are required to pay on your retirement distributions.

The 72t "substantially equal periodic payments" payout exception allows you to access your retirement funds early without the 10% early distribution penalty.

Once you have left an employer you can roll over your qualified retirement money to your own IRA rollover account tax-free.

There is no limit on the amount that can be rolled over tax-free. The "substantially equal periodic payments" payout exception will eliminate the 10% penalty on amounts you withdraw from your IRA pension accounts. You will still have to pay the regular taxes on any pension funds that you withdraw regardless of age or distribution method.

Roll over your lump sum distribution pension funds in a newly established IRA Rollover account to simplify record keeping and tax treatment. It is in this new IRA rollover account that you will have the flexibility to implement a "substantially equal periodic payments" payout program.

You can set up this special payout program for just one IRA account or all of your IRA accounts.

Very specific methods of calculations must be used to determine the exact amount that you can receive. A botched payout schedule may result in your paying the 10% penalty which you are trying to avoid.