Fixed Amortization Method (Retirement Accounts) - Explained
What is the Fixed Amortization Method?
Written by Jason Gordon
Updated at April 17th, 2022
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Table of Contents
What is the Fixed Amortization Method?How is the Fixed Amortization Method Used?Academic Research for the Fixed Amortization Method?What is the Fixed Amortization Method?
The fixed amortization method is a method in which an account balance is amortized over a period of years and is equal to the life expectancy as required by the IRS. Through the fixed amortization method, a retiree can have early access to his retirement funds before turning 59 without attracting any penalty from the IRS as stated in Rule 72t. This method spreads the account balances of the retirees over a period of time equal to the life expectancy required and at an interest rate of not more than 120% of the federal mid-term rate. The fixed amortization method is often used by early retirees to make withdrawals from their retirement funds without facing any penalty from the IRS.
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How is the Fixed Amortization Method Used?
There are three methods that early retirees (those retiring before the age of 60) can access and withdraw their retirement funds as stipulated in Rule 72t. These withdrawal methods are the fixed amortization method, the fixed annuitization method, and the required minimum distribution method. Retirees often avoid the application of Rule 72t, they only use this rule when they are retiring before they clock 60 years. The fixed amortization method and the fixed annuitization method have many strict rules and regulations guiding them, their rigid nature is the reason they are mostly avoided by many. The required minimum distribution method is the simplest of the three methods, it is recalculated every year and offers the littlest payment.
