The Service determined that by taking the two additional payments, she had impermissibly modified her series of payments before she reached age 59 1/2, and therefore the substantially equal periodic payment
exception was no longer effective for the 2004 distribution.
Based on the value of the account at that time and its expected growth, it was determined he should take out a fixed sum, hypothetically $28,000 annually for the next 25 years to satisfy the substantially equal periodic payment
requirements for early distribution.
In addition, this ruling provides guidance on what constitutes a reasonable interest rate to determine payments which satisfy the substantially equal periodic payment
Of all the exceptions to avoid the early distribution penalty, the substantially equal periodic payment
(SEPP) alternative is the most universally available.
Under the substantially equal periodic payment
exception, the account owner must withdraw a substantially equal amount from an IRA annually for five years or until the taxpayer reaches age 59 1/2.
Method 1: Payments will be treated as satisfying the substantially equal periodic payment
requirement if the annual payment is determined using a method that would be acceptable for purposes of calculating the minimum distribution required under Sec.
Note: IRC Section 72(u)(4)(C) states that "immediate annuity" means an annuity "which provides for a series of substantially equal periodic payments
during the annuity period.
Fortunately, there is an exception to the 10% additional tax on early distributions--the series of substantially equal periodic payments
(SEPPs)-- that can be useful for these taxpayers.
5 or if a distribution is taken as a result of your death, disability, or for a "life event," such as first-time home purchase; qualified higher education expenses; deductible medical expenses; payment of health insurance premiums during periods of long-term unemployment; and substantially equal periodic payments
based on life expectancies.
Section 72(t)(2)(A)(iv) provides that withdrawals of a series of substantially equal periodic payments
made for the life or life expectancy of the employee, or for the joint lives of the employee and a beneficiary, are not subject to the early withdrawal penalty.
If you take distributions in substantially equal periodic payments
based on your life expectancy
The 10% penalty tax will generally not apply to a series of substantially equal periodic payments
received annually or more frequently.