Substantially Equal Periodic Payments — Tap Retirement Accounts Early Without the 10% Penalty
What Is It?
A SEPP under section 72(t) can allow penalty-free early distributions from certain retirement accounts if you follow one of the IRS-approved substantially equal periodic payment methods.
What Most People Don’t Know
- The rules are rigid. Taking the wrong amount later can blow up the whole arrangement.
- The required duration is the longer of five years or until age 59½.
- This works differently for IRAs and employer plans.
Frequently Asked Questions
Is the money tax-free?
A: No. The SEPP exception removes the 10% additional tax, but ordinary income tax can still apply.
What happens if I modify the payment stream too early?
A: IRS guidance says an additional recapture tax can apply if you modify the series before the allowed end date.