Introduction to IRA SEPP Distributions

Introduction to SEPP Distributions, also known as 72(t) distributions shows man putting money puzzle together.

Learn more about Substantially Equal Periodic Payments (SEPP Distributions), how to calculate them, and how to claim exemption from the penalty.

Presented by Kevin M. Curley, II, CFP®:

Premature distributions from IRAs (i.e., distributions prior to age 591/2) are generally subject to a 10 percent penalty. The purpose of the penalty is to prevent people with insufficient savings from retiring too early, spending their nest egg, and then needing to rely on government assistance for the remainder of their retirement.

Certain premature distributions from IRAs are exempt from the distribution penalty:

  • Death of the IRA holder
  • Disability of the IRA holder
  • To pay for qualified medical expenses
  • To purchase health insurance for certain unemployed individuals
  • To pay for certain first-time home purchase expenses
  • To pay for certain education expenses of qualified individuals
  • To pay for an IRS levy
  • Qualified birth or adoption

Section 72(t) of the Internal Revenue Code (IRC) provides another exception to this rule. IRA holders younger than age 591/2 may take a series of substantially equal periodic payments (SEPPs)—also known as 72(t) distributions—over the course of their life expectancy or over the combined life expectancy with their beneficiary (usually a spouse).

How SEPPs Work

To qualify as a SEPP, the distribution must occur annually, and it must be calculated using one of three calculation methods. A series of distributions begun before age 591/2 must generally continue unchanged for five years or until the holder reaches age 591/2, whichever is later. This five-year rule is waived upon death or disability.

Payments can be modified only in the case of death, disability, or a permissible one-time change to the calculation method (more below). The 10 percent early distribution penalty, plus interest, will be retroactive to the first year of distribution. Payments can also be invalidated through:

  • Any addition to the account balance other than gains or losses
  • Any nontaxable transfer of a portion of the account balance to another retirement plan
  • A rollover by the taxpayer of the amount received, resulting in such amount not being taxable

Calculating SEPPs

There are three calculation methods for determining the value of the SEPP: the required minimum distribution (RMD) method, the amortization method, or the annuity method. As mentioned previously, IRA holders can make a onetime switch from the annuity or amortization methods to the more conservative RMD method if they wish to receive smaller distributions. They cannot, however, change the calculation method to receive a larger distribution.

Each distribution method is based on one of the life expectancy tables in IRS Publication 590:

  • The Joint Life Table is used to calculate the payments for elderly clients whose spouses are more than 10 years younger than the IRA holder and the sole primary beneficiary.
  • The Single Life Table is used to calculate the payments for an inherited IRA.
  • The Uniform Life Table is used to calculate the payments for unmarried clients, married clients with a nonspouse beneficiary, or married clients whose spouse beneficiary is not more than 10 years younger.

The RMD method. Payment is determined according to the rules for calculating RMDs under IRC Section 401(a)(9). Each year, the payment is determined by dividing the account balance by the number from the appropriate life expectancy table for that year. Generally, payments may be based on either the joint life expectancy of the IRA holder and a designated beneficiary, the IRA holder’s single life expectancy, or the IRA holder’s life expectancy based on the Uniform Lifetime Table.

The amortization method. Payments are determined by amortizing the IRA balance over either the joint life expectancy of the IRA holder and a designated beneficiary or over the IRA holder’s single life expectancy. A reasonable interest rate, decided on before the withdrawals begin, must be used. The withdrawal amount remains the same year-to-year, and it will generally be larger than the amount provided through the RMD method.

The annuity method. This method is similar to the amortization method, but instead of using a life expectancy table to determine the payment over the IRA holder’s single or joint life expectancy, it uses an annuity factor derived from the UP-1984 Mortality Table. This method results in the highest payment.

Claiming Exemption from the 10 Percent Early Distribution Penalty

If you receive an early distribution from your plan that is coded as a 2, 3, or 4 on IRS Form 1099-R, you will not be subject to an early distribution penalty. If, however, you receive a distribution that is coded as a 1, and you are eligible to claim one of the exceptions to the 10 percent penalty, file IRS Form 5329 with your tax return to claim your exemption.

Commonwealth Financial Network® does not provide tax or legal advice. You should consult a tax or legal professional regarding your individual situation.


Kevin M. Curley, II is a financial advisor located at Global Wealth Advisors 100 Crescent Court, 7th Floor, Dallas, TX 75201. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA  / SIPCa Registered Investment Adviser. Financial planning services offered through Global Wealth Advisors are separate and unrelated to Commonwealth. He can be reached at (214) 613-6580 or at

Introduction to 72(t) Distributions (SEPP Distributions) is authored by Brad McMillan, CFA®, CAIA, MAI, managing principal, chief investment officer, and Sam Millette, senior investment research analyst, at Commonwealth Financial Network®.

© 2022 Commonwealth Financial Network®

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