72(t) SEPP Calculator

It's an IRS-approved way to withdraw money from a traditional IRA or 401(k) before age 59½ without paying the usual 10% early-distribution penalty. You commit to taking a fixed series of "substantially equal periodic payments" -- calculated using one of three IRS-approved methods -- for at least 5 years or until you turn 59½, whichever is later.

The Fixed Amortization method (and Fixed Annuitization) typically produce a LARGER first-year payment than the RMD method, because they lock in one level payment for the life of the plan based on the starting balance, interest rate, and life expectancy -- the RMD method instead divides the CURRENT balance by a life-expectancy factor every single year, which usually starts lower but automatically adjusts down (or up) if your account value changes. Once you pick amortization or annuitization, IRS rules let you switch to the RMD method later (one time only) if the fixed payment turns out to be more than you need, but you can't switch the other direction.

The IRS's three approved methods are RMD, Fixed Amortization, and Fixed Annuitization (IRS Notice 2022-6). This calculator computes the first two exactly. The third requires an actuarial life-annuity factor derived from a specific IRS mortality table (Treas. Reg. 1.401(a)(9)-9(e)) that is distinct from the life-expectancy tables used for the other two methods -- rather than publish an approximated figure for it, this tool sticks to the two methods it can verify precisely. In practice, Fixed Annuitization produces a payment close to the Fixed Amortization method shown here.

If you modify the payment amount (other than the one-time permitted switch to the RMD method, or because of death or disability) before the plan has run for 5 full years AND you've reached age 59½ -- whichever is later -- the IRS retroactively disallows the 10% penalty exception for the ENTIRE plan. You then owe the 10% tax on every distribution you already took, plus interest for the deferral period, in the year of the modification (IRC 72(t)(4)).

A 72(t) SEPP plan gives you access to funds immediately at any age with no waiting period, but locks you into a rigid, IRS-calculated payment amount for years. A Roth conversion ladder is more flexible (you choose how much to convert each year) but requires a separate "bridge fund" to cover the first 5 years while converted principal seasons. Many early retirees combine the two: a SEPP plan (or taxable savings) bridges the first 5 years while a Roth ladder builds behind it. See this site's Roth Conversion Ladder Calculator for the other side of that comparison.

Only for the Fixed Amortization method -- a higher assumed interest rate produces a larger payment (up to the legal cap of the greater of 5% or 120% of the federal mid-term rate for the month your distributions begin). The RMD method doesn't use an interest rate at all; it's a simple balance-divided-by-life-expectancy calculation redone each year.