72(t) With a Fidelity IRA
If you set up a 72(t) with a Fidelity IRA, you take substantially equal payments from that IRA before age 59½ without the 10% early withdrawal tax.
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How a 72(t) With a Fidelity IRA Works
If you are under 59½, you avoid the 10% early withdrawal tax by taking substantially equal payments from one IRA until the later of 5 years or age 59½.
Fidelity sets up the payments on its Automatic Withdrawals form and calculates the amount if you choose amortization or life expectancy.
Fidelity reports each payment as an early distribution with no known exception, so you claim the exception on Form 5329.
What Is a 72(t) Distribution?
A 72(t) distribution is a series of substantially equal periodic payments from an IRA, taken at least once a year over your life expectancy. Under 26 U.S.C. 72(t), you owe no 10% additional tax on these payments if you follow three rules:
Length. You keep taking the payments until the later of 5 years from the first payment or age 59½.
No changes. Under Notice 2022-6, adding money to the IRA is a modification, and so is changing the payment. A transfer or rollover to another plan is not a modification if the combined payments still meet the rules, under 26 U.S.C. 72(t)(4)(C).
One switch. You may switch once to the required minimum distribution method without breaking the series.
You might use one if you retire early, leave a job or need income until Social Security starts. For the starting age, see at what age you can start a 72(t).
First payment
age 50
5 years
age 55
Age 59½
Change before 59½
10% on every earlier payment, plus interest
Free to change or stop
Minimum length: the later of 5 years or age 59½
72(t) Specialist for Fidelity IRAs
Dimov Tax handles the tax side of a 72(t) with a Fidelity IRA:
Payment calculation.
A CPA runs each IRS method on your balance and start date before you sign the Fidelity form.
Form review.
Dimov Tax checks the method, the amount and the IRA you name on the form.
Form 5329 each year.
The exception claim for each year Fidelity reports the payments with code 1.
A CPA or enrolled agent reviews the numbers, and Dimov Tax keeps them confidential.
72(t) Methods Fidelity Offers
For series that start in 2023 or later, the IRS allows three methods in Notice 2022-6: required minimum distribution, fixed amortization and fixed annuitization. On its form, Fidelity offers amortization, life expectancy (the minimum distribution method) and a fixed dollar amount you calculate yourself.
For the fixed methods, the rate cap is the greater of 5% or 120% of the federal mid-term rate. You can use the mid-term rate for either of the two months before the first payment. That cap is 5.54% for a November 2026 start, under Rev. Rul. 2026-19, and 6.11% for a December 2026 start, under Rev. Rul. 2026-21. If you are 50 with $600,000 in one Fidelity IRA in 2026, you get these first year amounts at 5%:
| Method and table | Sum | Yearly amount |
|---|---|---|
| Minimum distribution, single life | $600,000 ÷ 36.2 | $16,574.59 |
| Fixed amortization, single life | $600,000 × 0.05 ÷ (1 − 1.05 to the power −36.2) | $36,187.34 |
The 36.2 factor is from the single life table in Publication 590-B. On amortization, you take the same amount every year; on the minimum distribution method, you refigure the amount each year. For the amounts under each method and rate, see how much you can take out with a 72(t).
How to Set Up a 72(t) Distribution at Fidelity
You set up the plan on Fidelity’s Automatic Withdrawals IRA form:
Pick one IRA.
Fidelity allows one IRA per plan. Your other IRAs are not part of the plan, and you can start a separate series from another account later.
Choose the method.
Pick amortization of the prior December 31 balance at a rate you choose, or the life expectancy method, single or joint. If you calculate your own amount, enter it as a fixed dollar figure.
Set frequency and withholding.
Fidelity withholds 10% federal tax unless you choose otherwise, and pays once a year on December 5 if you pick no frequency.
Keep the file.
On the form, you accept full responsibility for the setup, so keep the calculation and the balance you used.
Fidelity requires a Medallion signature guarantee for a payment over $100,000.
Form 5329 for Fidelity 72(t) Payments
Under the Form 1099-R instructions, a payer uses code 2 when it knows a payment qualifies for the exception, and code 1 when it does not.
On its form, Fidelity says it reports every 72(t) payment as an early distribution with no known exception, which is code 1.
Code 1 does not mean your payments fail the rules.
With code 1 in box 7, you file Form 5329 and enter the amount on line 2 with exception number 02, under the Form 5329 instructions.
Repeat this each year you take payments.
If you skip the form, the IRS can assess the 10% tax.
72(t) Penalty for Breaking the Plan Early
For example, you take four amortization payments of $36,187.34 from age 50 to 53, then change the amount at 54:
You report the recapture on line 4 of Form 5329. The 10% is due only on the taxable part of each payment, so you owe less if the IRA holds nondeductible contributions. Payments you took after 59½ are not part of the recapture. If you need a smaller amount, you can make the one-time switch to the minimum distribution method without a recapture.
- Earlier payments. 4 × $36,187.34 = $144,749.36.
- Recapture. 10% × $144,749.36 = $14,474.94, plus interest.
- Year of the change. 10% of the payments you take at 54.
Fidelity 72(t) Help From a CPA
If you already take Fidelity payments and never claimed the exception, Dimov Tax can file Form 5329 for past years with an amended return.
Send your latest Fidelity statement and the age you plan to start, and Dimov Tax replies within 24 hours with a fixed quote. Dimov Tax prepares the individual return with Form 5329 and plans withdrawals with its financial planning team.
Reviewed by George Dimov, CPA. Certified to practice in all 50 states. 15+ years advising on individual, business, state and local tax.