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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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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Substantially equal periodic payment or Section 72(t) distribution (the "rule 72t") is available to anyone with a 401k plan, regardless of age.
Of course, pre-59V2 distributions must satisfy the "substantially equal periodic payment" (SEPP) rules of IRC Section 72(t) to avoid the additional 10 percent penalty tax for premature distributions.
This discussion will introduce several available methods of receiving penalty-free distributions from an IRA, as well as exceptions to the penalty; it will also focus on the substantially equal periodic payment (SEPP) method for avoiding the penalty on premature distributions, the general requirements to qualify for the SEPP method, the calculations made under this method, the SEPP method's advantages and disadvantages, IRS filing requirements, and planning opportunities for taxpayers and their financial advisors.
However, the SPIA IRA should not qualify for the "substantially equal periodic payment" (SEPP) exception to the 10 percent penalty rule under IRC Section 72(t)(2)(A)(iv).
In addition, this ruling provides guidance on what constitutes a reasonable interest rate to determine payments which satisfy the substantially equal periodic payment requirement.
The substantially equal periodic payment (SEPP) exception could be a viable solution The SEPP calculator at can help you calculate qualifying payouts; the IRS also provides guidance.
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.
Of all of the previously listed exceptions to the 72(t) penalty, the series of substantially equal periodic payment (SEPP) exception provides taxpayers and financial advisors with the most beneficial planning opportunities (and also some of the most significant traps and pitfalls).
Of all the exceptions to avoid the early distribution penalty, the substantially equal periodic payment (SEPP) alternative is the most universally available.
joint and survivor life expectancy: A numerical value, based on the ages of two individuals (i.e., second to die), taken from: Table VI for annuities, and from the RMD joint and survivor table for required minimum distribution (RMD) and substantially equal periodic payment (SEPP) purposes.
Distributing $173,580 annually would therefore satisfy the substantially equal periodic payment provision.
* 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.