How Is a 72T Annuitization Factor Determined?

by Joe Andrews ; Updated July 27, 2017

Under normal distribution rules, funds withdrawn from IRA accounts prior to age 59 1/2 are subject to a 10 percent federal tax penalty. IRS Rule 72(t) allows investors in IRA plans to withdraw money prior to age 59 1/2 and avoid this penalty. Participants must follow strict Substantially Equal Periodic Payment (SEPP) rules for five years or until age 59 1/2, whichever is longer. The fixed annuitization method is one of three ways to follow the SEPP rules and the annuitization factor is determined through three components.

Account Balance

Persons may be flexible when choosing a starting date to determine the IRA account balance that will be used to calculate the yearly amount that may be withdrawn without penalty. In subsequent years the owner must use the same date. The account balance on any date between December 31 of the prior year and the first distribution date may be chosen. Account owners are allowed a one-time switch from the fixed annuitization method to the required minimum distribution method, and may change the distribution date at this time only.

Annuity Factor

The IRA owner will need to calculate the annuity factor based on an IRS mortality table found in Appendix B of Rev. Rul. 202-62. On the table, the first column next to any given age represents the chance of passing away in a given year and the second column represents the number of persons still living, assuming one million births. IRA account owners must use a reasonable interest rate when factoring the annuity, defined as one not more than 120 percent of the federal mid-term rate published in revenue rulings by the IRS.

Annual Payment

The amount the IRA owner may take without IRS penalty annually is determined by dividing the account balance by the annuity factor. While other methods of determining SEPP payments consider the age of a beneficiary, the fixed annuity method only uses the IRA owner’s age in the calculation. This withdrawal amount cannot be changed as long as the participant uses the fixed annuitization method.


Outside of changing IRS law, there is no method to change the annuitization factor to produce different results. However, IRA owners may use other methods to change payouts if the annuitization factor creates too large or small payouts for their budget. Combining IRA accounts to create a larger pot of money to draw from will produce larger required withdrawals. Transferring a portion of an IRA to a separate IRA and then performing the annuitization factor on remaining dollars will create a smaller required distribution amount.

Finding the Factor

Many calculators are available on the Internet to help determine the account balance without completing the complex annuity factor formula by hand. Sites such as provide calculators that will ask which of the three methods you prefer to use. It will then ask for the account balance, age of owner and interest rate to determine the annuity factor. The calculator will then provide you with the amount you’re allowed to remove from your IRA without IRS penalties.

About the Author

As a former financial advisor to companies and individuals for 16 years, Joe Andrews knows financial planning and marketing from start-ups to personal budgets. He also writes on motor racing, board games and travel. Andrews received his B.A. from Michigan State University in English. He is currently working on a young adult novel.