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.
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Substantially equal periodic payments. Section 72(t) of the Internal Revenue Code allows you to withdraw money from your retirement plan on a regular basis.
662) explains what constitutes a series of
substantially equal periodic payments for purposes of the above Internal Revenue Code section.
Substantially equal periodic payments (SEPP): The annuitization method, the amortization method, and the required minimum distribution method are the three types of payments that will be considered SEPP.
(For more on SEPPs, see Burilovich and Burilovich, "
Substantially Equal Periodic Payments from an IRA," 39 The Tax Adviser 670 (October 2008).)
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.
In the alternative, the surviving spouse may wish to roll all or a portion of the death benefits over immediately into her own IRA and then utilize the series of
substantially equal periodic payments exception (see below) to withdraw funds.
Some taxpayers avoid an early withdrawal penalty when taking funds from IRAs or pension plans by using the "annuity exception"--a series of
substantially equal periodic payments over the taxpayer's life expectancy.
The 10% penalty tax will generally not apply to a series of
substantially equal periodic payments received annually or more frequently.
Distributions that are part of a qualified series of
substantially equal periodic payments (SEPPs) made annually to the IRA owner are also exempt from the penalty.
annuity: A series of
substantially equal periodic payments, at least annually, over an individual's life or life expectancy, or a fixed term.
IRC section 72(t)(2)(A)(iv) provides an exception for distributions that are part of a series of
substantially equal periodic payments (not less frequent than annually) made for the life (or life expectancy) of the employee or the joint lives (or joint life expectancies) of employee and beneficiary.
