Quick Answer: What Does Substantially Equal Periodic Payments Mean?

How does substantially equal periodic payments work?

The Substantially Equal Periodic Payment rule allows you to take money out of an IRA before the age of 59 1/2 and avoid the 10% early distribution penalty tax.

If you choose to use 72(t) payments, also called SEPP payments, you must withdraw the money according to a specific schedule..

What does periodic payments mean?

Periodic payments are made in installments at regular intervals over a period of more than 1. year. They may be paid annually, quarterly, monthly, etc. ( Form W4-P) The Code defines a periodic payment as “designated distribution which is an annuity or similar periodic payment.

What is the 72t rule?

Rule 72(t) allows penalty-free withdrawals from IRA accounts and other tax-advantaged retirement accounts like 401(k) and 403(b) plans. … This rule allows account holders to benefit from their retirement savings before retirement age through early withdrawal without the otherwise-required 10% penalty.

Is an RMD a periodic payment?

No, RMDs are not periodic.

Can you stop 72t distributions?

If you begin taking substantially equal periodic payments under rule 72t, you must continue to do so for at least 5 years or until you turn 59 1/2 – whichever is later. If for any reason you don’t take the prescribed withdrawal (you stop, make a mistake, etc.) there will be IRS penalties.

Is 72t a good idea?

Probably better to hold off withdrawal. I think using the 72(t) rule is a bad idea unless you have absolutely no other choices. You’re locked into making withdrawals for at least 5 years. This is substantial and will deplete your retirement account which is meant to provide a comfortable lifestyle when you are older.