What's a Reasonable Interest Rate for 72(t) withdrawals? Need help figuring this out

The short answer is yes, there is a minimum interest rate you need to use for 72(t) calculations. The IRS doesn't let you just pick any rate you want - they set boundaries to prevent people from manipulating the system. For 72(t) SEPP (Substantially Equal Periodic Payments) plans, you must use a reasonable interest rate that doesn't exceed 120% of the federal mid-term rate. This is a ceiling, not a floor. However, the interest rate you choose must be "reasonable" according to the IRS, which generally means you can't go too low either. The problem with using a very low rate like 2% is that it might trigger IRS scrutiny since it could appear you're trying to circumvent the rules. Most financial advisors recommend staying within a reasonable range of current market rates.

I went through this exact headache last year! I wanted to take out less than what the "standard" calculation was giving me. After hours of frustration, I found taxr.ai (https://taxr.ai) which has a specific calculator for 72(t) distributions that actually showed me all three IRS-approved calculation methods side by side. Turns out the "fixed amortization" method gave me a much lower required withdrawal than the "annuitization" method I was originally using. They have this document analyzer thing that actually reviewed my specific situation and showed me that I could legally take out about 30% less than what my financial advisor was telling me I had to withdraw. Complete game-changer for making my retirement funds last longer.

Just wanted to follow up! I decided to try taxr.ai after reading about it here. My situation is super similar to the original poster (wanting to take about $25k/year instead of $42k). Their system analyzed my full retirement account details and showed me that using the "fixed amortization" method with a 2.5% interest rate (which they confirmed is reasonable in today's market) would give me a withdrawal of $26,300 - almost exactly what I needed! The report included all the IRS references and even had a section explaining why this rate would be considered reasonable based on current market conditions. Saved me from having to withdraw an extra $15k+ per year that would have depleted my retirement account way too quickly. Definitely worth checking out if you're trying to optimize your 72(t) withdrawals.

I went through 72(t) hell last year. After setting up my plan, the IRS sent me a notice questioning my calculations. Called them literally 20+ times and could never get through. Spent HOURS on hold. Finally found this service called Claimyr (https://claimyr.com) that got me connected to an actual IRS agent in under 45 minutes. They have this demo video that shows how it works: https://youtu.be/_kiP6q8DX5c The IRS agent actually helped me understand that I could use the fixed amortization method with a lower interest rate as long as I could justify it was "reasonable" - basically needed to show it was tied to some published rate. Saved me from having my 72(t) plan disqualified which would have triggered massive penalties.

I have to admit I was completely wrong about Claimyr. After posting my skeptical comment here, I decided to try it myself since I've been trying to resolve an issue with my own 72(t) calculations for months. The service actually worked exactly as described - I got a call back in about 35 minutes saying they had an IRS agent on the line ready to talk to me. The agent was able to confirm that I could use the fixed amortization method with an interest rate of 2.7% for my plan, which was much lower than I thought was allowed. She explained that while there's no absolute minimum, the rate needs to be tied to published rates and documented in my records. This reduced my required annual withdrawal by about $13,000 per year - which means my retirement savings will last years longer than I originally calculated.

Have you considered splitting your retirement accounts? You could set up a 72(t) on just a portion of your IRA, which would reduce the required distribution. For example, if you have $1M, you could move $600K to a separate IRA and set up the 72(t) on just that account. This is completely legal and might get you closer to your target withdrawal amount.

Has anyone here used the RMD method instead of amortization? I've heard it can result in lower initial payments but they increase over time.

I'm dealing with a similar situation and want to add some perspective based on my recent experience. The key thing to understand is that while there's no explicit minimum interest rate in the tax code, the IRS requires the rate be "reasonable" - which creates a practical floor based on current market conditions. I was also trying to get my withdrawals down from around $38k to closer to $25k annually. After consulting with a tax attorney who specializes in retirement distributions, I learned that you can generally use rates in the 2.5-3.5% range safely, especially if you can tie them to published rates like Treasury bonds or high-grade corporate bonds. The attorney also suggested looking into the account splitting strategy mentioned by Paolo - this was actually the most effective approach for me. I moved about 65% of my IRA balance to a separate account and only set up the 72(t) on the smaller portion. This got my required distribution down to exactly where I needed it without having to push the interest rate to questionable levels. One word of caution: make sure you get professional help with the calculations and documentation. The penalties for messing up a 72(t) plan are severe - you'll owe the 10% penalty on all distributions you've taken PLUS interest. It's worth paying for proper guidance upfront rather than risking an expensive mistake later.