What is a 72T election regarding divorce?

What is a 72T election regarding divorce?

• A. A method for joint property ownership
• B. An IRS rule allowing penalty-free retirement withdrawal
• C. A type of investment option for couples
• D. A requirement for financial disclosures during divorce

Answer: (B)

A 72T election refers to a provision in the Internal Revenue Code that allows an individual to withdraw funds from their retirement accounts, such as an IRA or 401(k), without incurring the usual 10% early withdrawal penalty. This is particularly significant in the context of divorce, as it enables one spouse to access retirement funds to help meet immediate financial needs during the separation or divorce process. Making a 72T election involves setting up a series of substantially equal periodic payments (SEPP) that must continue for at least five years or until the individual reaches age 59½, whichever is longer. This can provide necessary liquidity without facing penalties, allowing for a more strategic financial plan in the aftermath of a divorce where assets may be limited or tied up in the divorce proceedings. The other options do not accurately represent the nature of a 72T election. Joint property ownership refers to how assets are held between spouses, investment options pertain to financial instruments or products couples might consider, and financial disclosures are legal requirements to reveal financial information during divorce proceedings. None of these directly connect to the tax implications and withdrawals associated with a 72T election.

A 72T election refers to a provision in the Internal Revenue Code that allows an individual to withdraw funds from their retirement accounts, such as an IRA or 401(k), without incurring the usual 10% early withdrawal penalty. This is particularly significant in the context of divorce, as it enables one spouse to access retirement funds to help meet immediate financial needs during the separation or divorce process.

Making a 72T election involves setting up a series of substantially equal periodic payments (SEPP) that must continue for at least five years or until the individual reaches age 59½, whichever is longer. This can provide necessary liquidity without facing penalties, allowing for a more strategic financial plan in the aftermath of a divorce where assets may be limited or tied up in the divorce proceedings.

The other options do not accurately represent the nature of a 72T election. Joint property ownership refers to how assets are held between spouses, investment options pertain to financial instruments or products couples might consider, and financial disclosures are legal requirements to reveal financial information during divorce proceedings. None of these directly connect to the tax implications and withdrawals associated with a 72T election.