By: William Hinder, EA | August 21st, 2025
If you’ve been saving hard in your 401(k) or IRA for years, you may reach your 50s and think: “Why am I waiting until 59½ to retire?”
The problem, of course, is that most retirement accounts hit you with a 10% early withdrawal penalty if you access the money before age 59½.
But there is a way around it.
One of my clients—let’s call him Jim—retired at age 50 and accessed his retirement savings without paying the early withdrawal penalty and while keeping his taxes under 4% per year. In this post, I’ll show you the exact IRS-approved strategy he used.
If you’ve ever wondered whether early retirement is possible without getting crushed by taxes or penalties, this guide is for you.
Early retirement isn’t just about having enough money—it’s about accessing your money efficiently.
Most people approaching early retirement run into one major roadblock:
You can’t tap most retirement accounts before 59½ without a 10% penalty.
That creates a big income gap for anyone wanting to retire in their 40s or 50s.
Sure, you could live on your taxable brokerage account for a while—but what if you want guaranteed, predictable income? What if you want your tax bill as low as possible? What if you want to protect your retirement savings so they last to age 90 or even 100?
To retire early and stay retired, you need a plan that creates income before 59½ without triggering penalties or draining your accounts too quickly.
One of the most underrated early-retirement tools is IRC Section 72(t), also known as Substantially Equal Periodic Payments (SEPP).
This IRS rule allows you to:
Take withdrawals from an IRA before age 59½,
Avoid the 10% early withdrawal penalty,
And create a predictable income stream for years.
But there’s a big catch:
5 years, or
Until you turn 59½, whichever is longer.
Required Minimum Distribution (RMD) method
Fixed Amortization method
Fixed Annuitization method
And if you make any mistake—skipping a payment, taking too much, or too little—the IRS can retroactively apply:
the full 10% penalty,
plus interest, on all prior withdrawals.
In short: 72(t) is powerful, but it must be done precisely.
Jim is 50, single, and worked in tech for 25 years. He earned about $300k per year and saved diligently:
$1.5M across 401(k), Roth IRA, and taxable brokerage
$300k in taxable investments
Owns his $500k home outright
$5,000/month lifestyle spending
Jim didn’t have a money problem—he had an access problem.
So here’s the strategy we used.
We rolled Jim’s old 401(k) into two traditional IRAs:
IRA #1: $600,000
IRA #2: $400,000
Why not keep it all in one IRA?
Because once you start 72(t), the annual withdrawal amount becomes locked in. Splitting the IRA lets you:
Apply 72(t) to only one account
Leave the other untouched and flexible
Avoid committing the full balance to a fixed distribution schedule
This step alone can save early retirees tens of thousands over the years.
We used the IRS-approved method that generated the maximum annual income for the $600k IRA.
Jim’s 72(t) withdrawal amount:
$37,153 per year
This income is now locked in for 9.5 years (until Jim reaches 59½).
This covers more than half his $60k annual spending—but we still need about $23k more.
Jim’s taxable brokerage account had $300k, invested efficiently and yielding:
~4% qualified dividends ≈ $1,000/month
$1,000/month long-term capital gains withdrawals
Total from taxable account:
$23,915 per year
And here’s where the magic happens.
Because qualified dividends and long-term capital gains are taxed at 0% below $48,350 of taxable income for single filers (2025 projection), and because Jim gets a $15,000 standard deduction, his taxable income stays below the threshold.
Result?
✔️ That entire $23,915 is tax-free.
✔️ His total income is ~$61,067.
✔️ Total federal taxes owed: $2,422.50
✔️ Effective tax rate: 3.96%
This is how you retire early and keep taxes minimal.
Retiring at 50 means your money needs to last 50 years or more. So we ran long-range projections with:
6.5% yearly returns
3.25% inflation
Spending needs adjusted over time
Result?
Jim has more than enough to retire at 50 and remain financially secure through age 100.
His withdrawal rate stays close to the 4% safe withdrawal rule, his taxes remain low, and he avoids the 10% penalty entirely.
When structured correctly, a 72(t) strategy:
Creates predictable income
Lets you use tax-advantaged accounts early
Keeps taxes low when coordinated with taxable accounts
Helps manage AGI for things like ACA premium tax credits
Adds flexibility when IRAs are split strategically
Many early retirees don’t realize how powerful taxable brokerage accounts and 0% capital gains brackets can be when combined with 72(t).
This strategy is often the key to bridging the gap between age 50 and 59½.
Jim’s story proves that early retirement isn’t just for the ultra-wealthy—it’s for anyone who plans ahead and uses the IRS rules to their advantage.
By structuring his income smartly, he:
Avoided early withdrawal penalties
Kept taxes under 4%
Maintained a safe withdrawal rate
Ensured his money lasts through age 100
Created true financial freedom at 50
If early retirement is your goal, then 72(t) may be the key that unlocks access to your savings much earlier than you thought possible.
If you want the same type of analysis Jim got—tax planning, investment strategy, safe withdrawal modeling, and early-retirement income design—I can help.
📊 Let’s create a retirement plan that helps you invest smarter, lower taxes, and make work optional.
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