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.
