Substantially equal periodic payments


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Substantially equal periodic payments (SEPP)

A method of distribution from IRA account assets that under certain conditions is not subject to the IRS's 10% premature withdrawal penalty for those under age 59-1/2.

Substantially Equal Periodic Payments

Annual distributions that one may take from an IRA without penalty, under certain conditions. Specifically, in order to avoid the penalty, one must agree to receive the payments in roughly the same amount for five years or until one turns 59 1/2 (whichever is longer). The SEPP structure allows one to access money in one's IRA before retirement without penalty, while still discouraging the abuse of the practice.
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Example: Mike, age 54 and single, would like to withdraw funds from his IRA using the substantially equal periodic payments exception to IRC Section 72(t).
The bad news: Using an acceptable method of determining substantially equal periodic payments, which are fixed in amount, may cause an individual's assets in an individual account plan or an IRA to be exhausted.
662) explains what constitutes a series of substantially equal periodic payments for purposes of the above Internal Revenue Code section.
The exception for itemized medical deductions applies even if the taxpayer is also receiving substantially equal periodic payments.
Of all the exceptions to avoid the early distribution penalty, the substantially equal periodic payment (SEPP) alternative is the most universally available.
annuity contract: A contract purchased from an insurance company that provides for substantially equal periodic payments beginning at a specified date and extending for a life (or lives) or a fixed period of time.
The third method allows payments to be treated as substantially equal periodic payments, if the amount to be distributed annually is determined by dividing the taxpayer's account balance by an annuity factor (the present value of an annuity of $1 per year beginning at the taxpayer's age attained in the first distribution year and continuing for the life of the taxpayer).
Annual payments calculated under one of the following methods will be considered substantially equal periodic payments (Notice 89-25; Rev.
A TAXPAYER WHO RETIRES BEFORE AGE 59 1/2 is exempt from the 10% penalty if the distribution is part of a series of substantially equal periodic payments.
a) income is part of a series of substantially equal periodic payments, payable at least annually, over the life or life expectancy of the recipient, the joint lives or life expectancies of the recipient and a designated beneficiary, or a period of at least 10 years; or
Distributions that are part of a qualified series of substantially equal periodic payments made annually to the IRA owner are also exempt from the penalty.
The husband, although he was under 59 1/2 years old, had already begun receiving substantially equal periodic payments without incurring penalties.