72(t) SEPP.
Access your IRA early without penalty (with strict rules).
A 72(t) Substantially Equal Periodic Payments arrangement lets you withdraw from an IRAIndividual Retirement Account (IRA)A personal retirement savings account with tax advantages. Two main types: Traditional (tax now, pay later) and Roth (pay now, tax-free forever).Full definition before 59½ without the 10% penalty. The trade-off: rigid rules. Modify the schedule early and the IRS retroactively applies the 10% penalty to every prior payment.
US-only. Section 72(t) is part of the US Internal Revenue Code. Other countries have different early-access rules.
72(t) is powerful but rigid. Once you start, you must continue the payments for 5 years OR until you reach 59½, whichever is longer. Modify the schedule early and the IRS retroactively imposes the 10% penalty on every payment, plus interest. Use it for IRAs (use Rule of 55 for 401(k)s).
Section 1 · What 72(t) is
IRS Code Section 72(t)(2)(A)(iv) allows penalty-free withdrawals from an IRA before age 59½ if you take "substantially equal periodic payments" (SEPP). This applies to IRAs only. Use the Rule of 55 for 401(k) early access verify×DON'T TRUST, VERIFYClaim: IRC 72(t)(2)(A)(iv) allows penalty-free withdrawals from IRAs in the form of substantially equal periodic payments.Verify at: IRS SEPP guidance ↗Notice 2022-6 (and predecessors) provide the technical methods. Consult a CPA before implementing..
Section 2 · The three calculation methods
The IRS allows three approved methods. Each produces a different annual distribution.
Method 1: Required Minimum Distribution (RMD) method
- Simplest.
- Recalculated annually based on account balance and life-expectancy table.
- Annual payment varies year to year.
- Typically produces the smallest distribution.
Method 2: Amortization method
- Fixed annual distribution.
- Based on account balance, life expectancy, and a "reasonable" interest rate (IRS specifies the maximum allowable rate, currently 5% or 120% of the federal mid-term rate, whichever is greater).
- Typically produces a larger distribution than the RMDRequired Minimum Distribution (RMD)The minimum amount the IRS requires you to withdraw annually from Traditional IRAs and 401ks starting at age 73 (rising to 75 in 2033). Calculated as account balance divided by your IRS life expectancy factor. Roth IRAs have no RMDs during the owner’s lifetime. method.
Method 3: Annuitization method
- Fixed annual distribution.
- Uses an annuity factor from IRS tables.
- Similar in result to amortizationamortizationThe process of paying off a loan through regular payments that cover both principal and interest.Full definition.
For most early retirees, the amortization method produces the most income and is the most commonly used.
Section 3 · The 5-year rule catch
You must continue payments for the LONGER of:
- Five years, OR
- Until you reach age 59½.
- Start at 45: must continue to 59½ (14.5 years).
- Start at 57: must continue to 62 (5 years, longer than the 2.5 years to 59½).
- Start at 55: must continue to 60 (5 years, longer than the 4.5 years to 59½).
If you stop, change the amount, or modify the schedule before the period ends: the IRS retroactively imposes the 10% penalty on every payment made, plus interest. This is the biggest risk: the income must be predictable for the full period.
Section 4 · Strategic uses (IRA segregation)
If you have $800,000 in IRAs and want to access $30,000/year via 72(t), do not put your whole IRA into the SEPP. Split the IRA:
- $300,000 IRA #1: 72(t) distribution producing approximately $30,000/year.
- $500,000 IRA #2: untouched, compounding.
Only IRA #1 is locked into the schedule. IRA #2 remains flexible verify×DON'T TRUST, VERIFYClaim: A 72(t) SEPP can apply to one segregated IRA while leaving other IRAs unrestricted.Verify at: IRS SEPP guidance ↗Standard practice. The 72(t) schedule is calculated on the segregated IRA's balance only. Confirm with a CPA before implementing..
Implementing a 72(t) SEPP is technical. Use a CPA who has done it before. The cost of a mistake is the retroactive 10% penalty on every payment.
- IRS. Substantially Equal Periodic Payments (SEPP) guidance · irs.gov/retirement-plans/substantially-equal-periodic-payments.
- IRS Notice 2022-6. Updated SEPP methods · irs.gov.