72(t) SEPP: How Substantially Equal Periodic Payments Work

A 72(t) SEPP lets you take penalty-free withdrawals from an IRA before age 59½, as long as you take a fixed series of payments and stick with it. It is one of the IRS exceptions to the early withdrawal penalty, and the most rigid one.

This guide is for IRA owners under 59½ who want steady income from their savings before that age. It matters because a SEPP done correctly avoids the 10% additional tax for years, while a broken schedule can bring back every prior year’s 10% with interest.

This guide explains the IRS rules for substantially equal periodic payments (SEPP) under Notice 2022-6 and the Internal Revenue Service SEPP FAQ (updated July 23, 2026): the three methods, the interest rate and life expectancy rules, what breaks a plan, and how the Rule of 55 differs. For the full list of other exceptions, see our IRA early withdrawal exceptions guide.

What are substantially equal periodic payments (SEPP)?

Internal Revenue Code section 72(t) imposes a 10% additional tax on early distributions from retirement accounts, including an individual retirement account, before age 59½. Internal Revenue Code section 72(t)(2)(A)(iv) exempts a “series of substantially equal periodic payments” made at least annually for your life or life expectancy, or the joint lives or joint life expectancy of you and your designated beneficiary.

The IRS calls this a SoSEPP. Most people say 72(t) SEPP, rule 72(t), or substantially equal periodic payments (SEPP). The payments avoid the penalty but are not tax free. Distributions from a traditional IRA are ordinary income, and you pay applicable taxes at your regular rates.

The trade-off is commitment. Once distributions begin from one of your retirement accounts, you must keep taking the calculated amount, with no extra withdrawals or contributions, until the later of five years or age 59½.

How do you qualify for 72(t)?

There is no minimum age when the retirement accounts involved are IRAs. Any account owner can start a 72(t) SEPP from an IRA, which makes it a tool for early retirement. For employer plans, such as a 401(k) or another qualified retirement plan, the IRS FAQ says you must separate from service with that employer before payments begin. That rule does not apply to IRAs.

The other conditions, from the IRS SEPP FAQ:

• Each SEPP is set up for one single account. You cannot combine account balances from multiple accounts to compute one payment. If you have more than one account, you can set up a separate SEPP for each, and each must be managed on its own.
• After the SEPP starts, you cannot add money to the account or take any distribution other than the SEPP payment. Investment gains and losses do not count as additions.
• You cannot have more than one SEPP in effect for the same account in a year.
• You cannot modify the series before the later of the fifth anniversary of the first payment or the date you reach age 59½, except for death, disability, or a qualified public safety distribution.

Because each SEPP is tied to one account, an account holder with several IRAs chooses which one funds it. Splitting an IRA before payments start is a planning question for your custodian and tax advisor, because Notice 2022-6 treats changes to the account balance after the valuation date as a modification.

The three IRS-approved methods

Notice 2022-6 lists three methods that automatically satisfy the exception. All three methods use life expectancy tables, and the amortization and annuitization methods also use an interest rate. The IRS says other methods are not ruled out, but only these three IRS-approved methods are automatically accepted.

Required minimum distribution method (RMD method)

The RMD method divides the account balance by a life expectancy factor for your age that year, so it works as a life expectancy method with no interest rate. The account balance is generally the balance at the end of the prior year. Because both the balance and the factor change, the payment amount is recalculated every year.

In the IRS example below, it produced the smallest annual distribution. Pub 590-B adds an important caution: when the required minimum distribution method is used for a SEPP, it produces the exact amount you must take, not a minimum. Do not confuse it with the required minimum distribution you take later in retirement; see our IRA required minimum distributions guide for that separate rule.

Fixed amortization method

The fixed amortization method amortizes the account balance in level annual amounts over your life expectancy, using an interest rate you choose within IRS limits.

Under the amortization method, the first-year amount repeats in every later year. Fixed amortization does not recalculate when the market moves.

Fixed annuitization method

The fixed annuitization method divides the account balance by an annuity factor. The annuity factor is the present value of $1 per year paid for the rest of your life (or joint lives), using the mortality rates in the regulations and your chosen interest rate.

Like the fixed amortization method, fixed annuitization produces fixed payments: the annual payment set in year one repeats until the plan ends. Pub 590-B notes the two fixed methods “may require professional assistance.”

Life expectancy determined by IRS life expectancy tables

For the RMD method, Notice 2022-6 lets you use one of three life expectancy tables from the 2022 regulations:

• the Uniform Lifetime Table in Appendix A of Notice 2022-6
• the Single Life Table, for single life expectancy (your age alone)
• the Joint and Last Survivor Table, for joint life expectancy with a designated beneficiary

For fixed amortization, the life expectancy determined from one of those tables sets the number of years. Fixed annuitization uses mortality rates instead.

The table matters. A longer life expectancy produces a smaller payment, so single life expectancy produces a larger payment than joint life expectancy at the same ages. If you use joint life expectancy under the RMD method and the beneficiary dies or is removed, the IRS FAQ says to use the Single Life Table in later years if no other designated beneficiary remains.

Plans begun before 2022 used Revenue Ruling 2002-62 and earlier life expectancy tables (2022 starts could use either), with a transition rule for the RMD method.

The interest rate: 5% or 120% of the federal mid-term rate

The amortization and annuitization methods need an interest rate. Under Notice 2022-6, you may use any rate up to the greater of 5% or 120% of the federal mid-term rate for either of the two months before the first payment. The IRS publishes the federal mid-term rate monthly in its applicable federal rates revenue rulings.

A higher interest rate produces a higher payment. Choosing the maximum rate is allowed, but it locks in a larger withdrawal for years. The RMD method does not use an interest rate.

How the account balance is determined

For the RMD method, the account balance generally follows the RMD rules and is the prior year-end balance.

For the two fixed methods, the balance must be determined in a reasonable manner based on the facts. Notice 2022-6 says a balance from any date between December 31 of the prior year and the date of the first distribution counts as reasonable. For a fixed method, the balance you pick sets the payment amount for every later year, so make the valuation date part of your financial plan.

How do I calculate my 72(t) distribution?

The IRS SEPP FAQ works one example through all three methods. Bob turns 50 in 2023 and has an IRA account balance of $400,000 at the end of 2022. He uses single life expectancy from the Single Life Table (36.2 years at age 50) and, for the fixed methods, a 4% rate, which is under the 5% cap.

• RMD method: $400,000 divided by 36.2 equals $11,050 for 2023. The next year, the RMD method divides the new balance by 35.3, the life expectancy factor at 51.
• Fixed amortization method: an amortization factor of 18.9559 gives $21,102 a year, every year.
• Fixed annuitization method: an annuity factor of 18.1568 gives $22,030 a year, every year.

In the IRS example, the same $400,000 produces calculated payments from about $11,000 to $22,000, depending on the method. The IRS also notes that the SEPP does not start until the first payment is made, so it should start in the calendar year used for the calculation.

Online calculators help, but verify the inputs: the life expectancy tables, the interest rate, the account balance, and the start date. A tax professional or financial professional should check the withdrawal amounts before distributions begin.

Can you split the annual payment into installments?

Yes. Subject to your custodian’s limits, you can take the annual amount monthly, quarterly, or once a year. The installments in each year must add up to the annual distribution.

How long payments must last: 5 years or age 59½

A SEPP must continue until the later of the fifth anniversary of the first payment or the date you reach age 59½. Start at 52, and you are locked in until 59½. Start at 57, and you are locked in for a full five-year period, until at least 62.

The IRS FAQ gives an example. Someone born August 15, 1968, starts payments December 1, 2024, at 56. They reach 59½ on February 15, 2028, but cannot change the payments until December 1, 2029, five years after the first payment.

Can you stop 72(t) distributions after 5 years?

Only if you have also passed 59½. Once both conditions are met, you can stop, change the amount, or take more without the recapture tax. If you are still under 59½ after five years, you must keep going.

What counts as a modification, and the recapture tax

You modify a SEPP if you take more or less than the calculated annual amount, add money to the account, or transfer part of the balance. Pub 590-B describes a narrow exception for certain transfers between qualified employer plans. Other than for death, disability, or certain public safety distributions, a modification before the end date triggers two taxes in that year:

• the 10% early withdrawal penalty on that year’s distributions, and
• a recapture tax equal to the 10% you avoided in every prior year of the SEPP, plus interest for the deferral period.

Report the recapture on Form 5329. The original SEPP is then over, though you may begin a new one in a later year.

The one-time switch to the RMD method

There is one allowed change. If you started with fixed amortization or fixed annuitization, you can switch once to the RMD method in any later year without a modification. After the switch, you must stay on the RMD method in all later years.

In the IRS example, Sam used fixed amortization for a $36,251 annual payment starting in 2023. He switched in 2026, dividing his December 31, 2025 balance of $810,250 by 31.6, for a new annual amount of $25,641. The switch can help if markets fall and the fixed payment is draining the account.

Account depletion, death, and disability

If following your method empties the account, a smaller final payment and the end of payments are not a modification. Death and disability also do not trigger recapture.

72(t) SEPP vs the Rule of 55

The rule of 55 is a different exception for early withdrawals. Under the IRS exceptions table, the rule of 55 lets you take penalty-free distributions from an employer plan if you separate from service during or after the year you turn 55 (50 for qualified public safety employees). The rule of 55 does not apply to IRAs.

Key differences:

• The rule of 55 applies only to the retirement plan of the employer you left; 72(t) works with IRAs and employer-sponsored retirement plans after separation.
• The rule of 55 requires no schedule, so you withdraw funds as needed. A 72(t) SEPP requires fixed or formula-set payments for years.
• The rule of 55 depends on the year you leave the job; a 72(t) SEPP from an IRA works at any retirement age.

If you leave a job at 55 or later, compare the rule of 55 before rolling that 401(k) into an IRA. Once the money is in an IRA, the rule of 55 no longer applies, and 72(t) may be your main source of penalty-free withdrawals before 59½. See our 401(k) to IRA rollover guide.

Taxes and reporting for early distributions

SEPP payments from traditional retirement accounts are taxed as ordinary income in the year received. Your custodian reports them on Form 1099-R, generally with code 2 (early distribution, exception applies). If the code is wrong, claim exception 02 on Form 5329. The 1099-R instructions say custodians must use code 1 if a SEPP is modified within five years.

A Roth IRA can also fund a SEPP, but Roth contributions can already come out tax and penalty free, so the exception matters mainly for Roth earnings. See our traditional IRA guide for how withdrawals are taxed, and our retirement tax strategy guide for planning the brackets those payments land in. The tax implications extend to other benefits too; see Social Security and IRA withdrawals.

Is 72(t) a good idea for early retirement?

It can be, in certain circumstances. A 72(t) SEPP can fit early retirement when you have large retirement savings in IRAs and want steady income before 59½ for a known number of years.

The risks are real:

• You lose flexibility. If you need to withdraw funds beyond the schedule, the plan breaks and recapture applies with interest.
• Fixed payments do not adjust in a bad market, which can deplete retirement accounts early.
• Early withdrawals reduce the retirement savings left to grow.
• Mistakes in the method, table, or interest rate are costly and hard to undo.

Alternatives to early withdrawals under a SEPP include another exception from our early withdrawal exceptions list, the rule of 55, taxable savings, or a Roth conversion ladder, which relies on conversions and the Roth five-year rule to reach retirement savings early. The right choice depends on your full financial plan and tax advice from a professional.

Beyond early withdrawals: beneficiaries, divorce, and charity

A SEPP account owner should name beneficiaries like any other IRA owner; see IRA beneficiary designation and inherited IRA rules. If a divorce could split the SEPP account, read QDRO and IRA divorce and get advice before any transfer. After 70½, a qualified charitable distribution is a separate way to move IRA money out tax free.

The bottom line

Rule 72(t) offers a legitimate, IRS-sanctioned way to access retirement accounts early, but it is a contract with yourself that runs at least five years. Follow the IRS rules, use one of the three methods, document your table, interest rate, and account balance, and have a tax advisor review the numbers before the first payment. Your financial future depends on getting the schedule right.

Written by Tim Schmidt and reviewed for tax and account accuracy by Sean Webster, CPA. Last reviewed November 10, 2026 (America/New_York). This guide is for general education, not tax, legal, or investment advice, and not a recommendation to take a distribution. IRAInvesting.com is not a custodian, broker-dealer, tax preparer, or investment adviser. Talk with a licensed tax professional before you act, and confirm current limits on IRS.gov. Investing involves risk, including possible loss of principal.