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72(t) Articles

What Does 72(t) Series of Equal Periodic  Payments Mean?

When it comes to financial planning, it is important to understand the various terms and concepts that are used. One such term is “series of equal  periodic payments” (SEPP) or  “series of substantially equal payments. This term is often used in the context of pre-Age 59 ½ retirement planning and can be a bit confusing to those who are unfamiliar with it. In this blog post, we will discuss what series of substantially equal payments mean and how they can be used in retirement planning.

What Are Series of Periodic Payments?

Series of Equal  Periodic Payments (SEPP) refer to a set of regular payments that are made over a period of time. These payments (this Income) may be made on a monthly, quarterly, semi-annual or annual basis and are typically used for pre-Age 59½ retirement planning purposes. The amount of each payment is usually fixed and does not vary from one payment period to the next. This type of income plan allows individuals to generate retirement income in an organized manner generally prior to the Age of 59 ½ years of age and  typically from an IRA.

How Can Series Of Substantially Equal Payments Be Used In Retirement Planning?

Series of substantially equal payments (SEPP) can be used in retirement planning in several ways. First, they can be used as part of an annuity plan, which is an investment/savings vehicle that provides a steady stream of income during retirement years. Annuities are typically funded over a period of time or with a lump sum and then pay out periodic payouts when needed or wanted.  

Second, series of substantially equal payments can also be used as part of a 401(k) plan or other employer-sponsored retirement plan. By making regular contributions into these plans, individuals can save for their future while taking advantage of tax benefits such as pre-tax contributions or tax-deferred growth on investments within the plan.

Finally, series of substantially equal payments can also be used as part of an IRA (Individual Retirement Account). IRAs allow individuals to save for their future while taking advantage of tax benefits such as pre-tax contributions or tax-deferred growth on investments within the account.

Advantages Of Using a 72(t)  Series Of Substantially Equal Payments

The main advantage to using series of substantially equal payments for retirement planning is that it allows individuals to first save for their future in an organized manner while still having access to their money when needed. Additionally, this type of payment/income  plan helps ensure that individuals who make consistent contributions over time will hopefully have enough money saved up for their retirement years. 

Finally, by taking advantage of tax benefits associated with certain types of accounts (such as 401(k)s or IRAs), individuals may also be able to reduce their overall taxes and/or penalties owed on these accounts over time by properly structuring a 72(t) SEPP.

Disadvantages Of Series Of Substantially Equal Payments

While there are many advantages associated with using a 72(t) series of substantially equal payments for retirement planning, there are also some potential disadvantages that should be considered before making any decisions about this type payment/income  plan. 

For example, if an individual fails to receive consistent distributions over the required IRS time period or if they withdraw funds from these accounts prematurely without following the 72(t) IRS rules, they may incur penalties or taxes which could reduce the amount available for use during retirement years. 

Additionally, if interest rates change significantly over time or if the investments within these accounts do not perform well, this could also reduce the amount available during retirement years as well.

Conclusion

In conclusion, a 72(t) SEPP (series of substantially equal payments or series of equal periodic payments) can be a useful financial planning strategy when it comes to preparing for retirement years ahead. However, before making any decisions about this type of strategy it is important to consider both the advantages and disadvantages associated with 72(t) so that one can make an informed decision about what works best for them and their financial goals. 

It makes sense to seek an experienced, knowledgeable financial advisor who can assist in this IRS approved strategy.

A quick phone call will help you determine if this is right for you