The
substantially equal periodic payment (SEPP) exception could be a viable solution The SEPP calculator at BankRate.
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).
In addition, this ruling provides guidance on what constitutes a reasonable interest rate to determine payments which satisfy the
substantially equal periodic payment requirement.
Of all the exceptions to avoid the early distribution penalty, the
substantially equal periodic payment (SEPP) alternative is the most universally available.
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.
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.
In addition, you can avoid the penalty by taking
substantially equal periodic payments for your life (or life expectancy) or the joint lives (or joint life expectancies) of yourself and a designated beneficiary.
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.
