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The basics
Section 72(t) normally adds 10% to the taxable part of many retirement distributions before age 59½. A correctly established series of substantially equal periodic payments—often called a SEPP or SoSEPP—can qualify for an exception. The income tax does not disappear; only the additional 10% tax is waived for qualifying payments.
Illustrative numbers
The model’s fixed-amortization method
Opening balance$400,000
Starting age50; single-life expectancy 36.2
Modeled annual paymentabout $24,125
The model takes the same gross amount in each active plan year, taxes it as ordinary income, and sets the modeled early-distribution penalty on that payment to zero.
Calculation transparency
How it works in MoneyWhatIf
- 01
The control is available on traditional IRAs and pre-tax workplace accounts. It fixes the payment when the selected start year arrives, using that year’s remaining balance and the owner’s age.
- 02
The calculation uses the IRS fixed-amortization method, a 5% rate, and the post-2022 Single Life Expectancy Table. The payment is not recomputed after market gains or losses.
- 03
Payments continue until the model has covered at least five plan years and the owner has reached the plan year in which age 60 is shown—the annual model’s approximation of the later of five years or age 59½.
- 04
Each payment is ordinary income. The payment’s 10% early-distribution tax is waived, and the net cash is available to that year before discretionary gap funding begins.
- 05
If the account runs short, the payment is capped at its remaining balance.
Keep in mind
Model limits
The model does not validate a real SEPP. It does not enforce the workplace-plan separation-from-service condition, prohibit contributions or extra distributions from the elected account, or determine whether a later change causes recapture tax and interest.
The annual age approximation does not represent exact first-payment dates, half birthdays, partial final years, installment timing, or every permitted calculation method and one-time method change.
Use the IRS rules and a qualified tax professional before establishing or modifying an actual payment series.
This explanation documents the planning model. It is educational, not individualized tax, legal, Medicare, or investment advice.
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Related financial terms
Plain-English definitions, with 2026 figures and worked examples, from the financial terms glossary.