72(t) SEPP: a five-year (or longer) commitment with stricter rules than most marriages

By Tom, CPA · Updated October 25, 2026

TL;DR: A 72(t) series of substantially equal periodic payments (SEPP) lets you take money from an IRA or a former employer's plan before 59½ without the 10% additional tax. In exchange, you must follow an IRS-approved formula until the later of five years or age 59½, and breaking it can bring back the penalty on every prior payment.

Educational only, not tax, legal, or investment advice. Examples are illustrations, not predictions. Rules and limits change; verify current figures and talk to a qualified professional about your situation.

The 72(t) exception is the only early-access door that works at almost any age, from almost any IRA. That sounds wonderful until you read the vows. You agree to take a calculated amount every year, no more and no less, for at least five years or until you turn 59½, whichever comes later. Start at 45 and you are committed until 59½: fourteen and a half years of exactly the same withdrawal ritual.

It's the financial equivalent of promising to eat the same breakfast every morning for a decade, with the IRS checking your plate. Some people love oatmeal. Some people should not take this vow.

The IRS calls the arrangement a "series of substantially equal periodic payments," or SoSEPP. Most people say SEPP or just "72(t)," after the code section. Here's how it actually works.

CPA Warning Label: Bust a 72(t) series early and the IRS retroactively applies the 10% to every payment you took, plus interest. Calculate twice, change nothing, and keep paperwork like it's a treasure map.

The basic deal

Under section 72(t)(2)(A)(iv), distributions that are part of a series of substantially equal periodic payments over your life expectancy (or the joint life expectancies of you and your beneficiary) are exempt from the 10% additional tax. The IRS FAQ lists the conditions:

• If the money comes from an employer plan (401(k), 403(b), etc.), you must have separated from service with that employer before the payments begin. IRAs have no such requirement.
• Once the series starts, you can't add money to the account or take any other distributions from it.
• You can't have more than one SEPP in effect for the same account in a year.
• You can't modify the series before the later of the fifth anniversary of the first payment or reaching age 59½, except for death, disability, or certain public safety distributions.

Income tax still applies to pre-tax money. 72(t) only removes the extra 10%.

The three IRS-approved methods

IRS Notice 2022-6 lists three methods. All use a life expectancy table; two also use an interest rate.

For the RMD method, Notice 2022-6 allows the Uniform Lifetime Table (Appendix A of the notice), the Single Life Table or the Joint and Last Survivor Table in the 2022 regulations. The RMD method usually produces the smallest payment. Amortization and annuitization usually produce larger ones.

One useful escape hatch: the IRS says a one-time switch from the amortization or annuitization method to the RMD method is not treated as a modification. That lets someone whose account has fallen shrink the payments without blowing up the series. Going the other direction is not allowed.

The interest rate under Notice 2022-6

For the two fixed methods, the IRS FAQ says you must choose an interest rate that is not more than the greater of:

• 5%, or
• 120% of the federal mid-term rate for either of the two months immediately before the month of the first payment.

Before Notice 2022-6, the cap was tied only to the federal mid-term rate, which was tiny for years, so payments were tiny too. The 5% floor on the cap made the fixed methods far more useful. A higher rate means a bigger payment from the same balance. Whatever rate you choose, you lock it in for the life of the series.

Illustration: what the methods produce

Illustration (assumptions): IRA balance $1,000,000; owner age 50; life expectancy factor assumed at 36 years for simplicity (look up the exact factor from the IRS tables for your age and table choice); interest rate 5%.

• Fixed amortization: $1,000,000 amortized over 36 years at 5% is about $60,434 a year.
• RMD method (first year): $1,000,000 ÷ 36 is about $27,778, recalculated every year.

Same money, roughly a two-to-one difference in payment. That's why the method choice matters as much as the balance. You can try your own numbers in the 72(t) calculator.

The modification penalty

If you take more or less than the calculated amount before the series is allowed to end, the IRS treats the series as no longer in effect for that year. You then owe two things in that year: the 10% additional tax on the current distribution (if no other exception applies), plus a recapture tax under section 72(t)(4) equal to the 10% you avoided on every earlier payment, plus interest.

Illustration: Lavish Larry took $60,000 a year for four years under a 72(t), then grabbed an extra $20,000 for a boat in year five, at age 52. The recapture alone is 10% of $240,000, or $24,000, plus interest, plus 10% on the year-five distribution. That's an expensive boat. It probably doesn't even float.

Things that are not modifications, per the IRS: death, disability, the one-time switch to the RMD method, and running out of money because the account was fully depleted by the payments and market losses.

Splitting IRAs to right-size the payment

Because a SEPP is calculated on the balance of the specific account you designate, you can split a large IRA into two IRAs by trustee-to-trustee transfer before starting. Then you run the 72(t) on only one of them, sized to produce the payment you actually need, and leave the other untouched (or use it later for other strategies).

Illustration: Fran has a $1,000,000 IRA but only needs about $30,000 a year. Splitting off a $500,000 IRA and running fixed amortization at the same assumptions as above produces about $30,217 a year, and the other $500,000 stays flexible. Do the split before the first payment, and keep clear records of which account is the SEPP account.

Practical setup steps

• Pick the account. Decide which IRA (or former employer plan) will carry the series, and split it first if the balance is bigger than you need.
• Document the inputs. Write down the balance date used, the table, the interest rate and the two months of federal mid-term rates you compared. The IRS says the balance must be determined in a reasonable manner, so keep the statement that shows it.
• Automate the payment. Set up a fixed annual or monthly distribution with the custodian. The IRS allows the annual amount to be split into installments during the year, but the yearly total must match.
• Calendar the end date. The series can stop after the later of the fifth anniversary of the first payment or 59½. Ending one day early is a modification, so pick a date with margin.

When 72(t) makes sense (and when it doesn't)

72(t) tends to fit when:

• You're retiring well before 55, with most assets in pre-tax accounts and not much in taxable or Roth.
• You need steady income and can live with a fixed number for years.
• You've modeled what happens if markets drop and you're still required to take the same payment.

It tends to fit poorly when your spending is lumpy, when the Rule of 55 would work instead (see Rule of 55 vs 72(t)), or when a Roth conversion ladder plus a taxable bridge would cover the gap with more flexibility. Many FIRE plans combine a small 72(t) with a ladder.

Recordkeeping matters. Your 1099-R may show code 2 (early distribution, exception applies), but if it doesn't, Form 5329 is where you claim the exception.