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72(t) SEPP Explained

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IRS Rule 72(t) SEPP is the tax provision that allows individuals to access
their qualified retirement funds penalty-free prior to the age of 59 1/2.

IRS Rule 72(t) SEPP

  • This rule allows penalty-free withdrawals from qualified retirement accounts.
  • These withdrawls are payments (Series of Equal Periodic Payments or SEPP) that give you access to income without incurring a 10% early withdrawal penalty.
  • The penalty avoided is normally levied if you take distributions before age 59½.
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How Are Payments Calculated?

Distributions must be taken for the longer of 5 years or until age 59½ . The amount you must withdraw is determined using one of three methods.

Life Expectancy
(RMD Method)

Calculated by dividing your account balance by your life expectancy. The distribution amount is recalculated each year, so your withdrawals fluctuate.


Calculated using your life expectancy, account balance and an interest rate to determine the distribution from your IRA. The distribution amount remains the same each year.


Calculated by dividing your account balance by an annuity factor based on your life expectancy and an assumed interest rate. Your distribution amount remains the same each year.

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72(t) SEPP – What You Need to Know

  • The payments must continue for at least five (5) years or until you are age 59½, whichever period is longer.
  • You must take the payments at least annually.
  • The payments must be substantially equal and generally may not be changed or stopped during the payment term, unless you become disabled or die.
  • You may not roll over or convert your 72(t) payments.
  • The 72(t) payment plan is only applicable to the IRA from which you calculated your initial payment. Before setting up a 72(t) payment plan, you can split your IRA into two IRAs, if desired. You can use one IRA to calculate and take your 72(t) Series of Equal Periodic Payments, while the other can remain available for future non-72(t) use.
  • You can switch to the RMD method from either the amortization or the annuity factor method. This is a one-time irrevocable switch and you must use the RMD method for the remainder of the schedule. Any modifications beyond this, would retroactively trigger the 10% penalty back to the beginning of your 72(t) plan. This can be very costly.
  • The IRS has approved 3 methods for calculating 72(t) payments. Those methods are the required minimum distribution (RMD) method, the amortization method, and the annuity factor method. While other methods of calculating the payments are not prohibited, it would be extremely risky to use some other method that is not officially “blessed” by the IRS.
  • An extra withdrawal is considered a modification of the payment schedule. Any change in the account balance other than by regular gains and losses or 72(t) distributions, will be also considered a modification and the 10% penalty will be triggered. This means that you cannot add funds to your IRA either through rollovers or contributions.

If you have $200,000 or more in your 401(k), IRA or other Qualified Retirement Plan, we can help. Ask us about our No-Fee, No Market Risk 72(t) investment options.
We work with the most well-known 72(t)-friendly custodians to customize
and manage your portfolio to execute your penalty-free income plan.

Our complimentary consultation will help you determine
if utilizing IRS Rule 72(t) is right for you.

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