What is 72(t) / SEPP?
Section 72(t) of the Internal Revenue Code allows you to take penalty-free withdrawals from an IRA or qualified retirement plan before age 59½ if the payments are "substantially equal periodic payments" (SEPP). You must use one of three IRS-approved methods and continue the series for the greater of five full years or until you reach 59½.
The Three IRS-Approved Methods
- 1
Fixed Amortization
Your account balance is amortized over your life expectancy (from the IRS table) at an interest rate not more than 120% of the federal mid-term rate. The same dollar amount is paid each year.
- 2
Required Minimum Distribution (RMD) Method
Each year's payment equals the account balance (as of the prior valuation date) divided by the life expectancy factor for that year. Payments can go up or down with your balance and age.
- 3
Fixed Annuitization
The annual payment is determined by dividing your balance by an annuity factor (present value of $1 per year for your life using the IRS mortality table and chosen interest rate). The payment is fixed once calculated.
How to Use This Calculator
Enter your account balance, your current age, and the applicable IRS interest rate (check the IRS website for current federal mid-term rates). The tool shows the first-year or fixed annual amount for each method so you can compare options. The RMD method is recalculated every year; the amortization and annuitization methods lock in a fixed payment.
Important Caveats
- If you change the payment series (other than a one-time switch to the RMD method), the 10% early withdrawal penalty may apply retroactively.
- Use the life expectancy and interest rate rules that apply to your start year; the IRS updates tables and rates periodically.
- This calculator is for estimation only. Consult a tax or financial professional before starting a 72(t) distribution.