📋 72(t) SEPP Calculator

Rule 72(t) refers to Internal Revenue Code Section 72(t), which imposes a 10% early withdrawal penalty on retirement account distributions before age 59½. However, Section 72(t) also provides an important exception: Substantially Equal Periodic Payments (SEPP). If you take SEPP, you can withdraw from your 401(k) or IRA penalty-free before 59½.

The 3 IRS-Approved Methods

The IRS allows three methods to calculate SEPP:

• RMD Method (Minimum Distribution Method): Uses the same formula as Required Minimum Distributions. Your annual payment = account balance ÷ life expectancy factor. This amount changes each year. Most flexible (you can switch to this method from others), but least predictable.
• Fixed Amortization Method: Amortizes your account balance over your life expectancy at a fixed interest rate. Payment is fixed each year. Cannot switch methods (except to RMD).
• Fixed Annuitization Method: Uses an annuity factor (IRS applicable federal mid-term rate + life expectancy). Payment is fixed. Cannot switch (except to RMD).

The 5-Year / Until 59½ Rule

You must continue SEPP for the longer of: (1) 5 years, or (2) Until you reach 59½. Examples: (1) Start at 50 → must continue until 59½ (9½ years). (2) Start at 57 → must continue until 62 (5 years). If you modify or stop SEPP early, the IRS retroactively applies the 10% penalty to ALL previous withdrawals plus interest.

One-Time Method Switch

You're allowed to switch from Fixed Amortization or Fixed Annuitization to the RMD method one time. This can be useful if your account balance drops significantly. However, you cannot switch from RMD to Fixed, or from Fixed to Fixed.

Who Should Use Rule 72(t)?

Rule 72(t) is ideal for early retirees who need income between retirement and 59½. For example, if you retire at 50, you can use SEPP to create a "bridge" of penalty-free income until 59½. However, it's a strict commitment — modify early, and you'll pay a steep price.

Use our calculator (above) to compute your annual SEPP amount using each of the 3 methods. Here's what you need to know:

Inputs Needed

• Current Age: Your age when SEPP starts.
• Account Balance: The IRA or 401(k) balance you'll use for SEPP.
• Interest Rate: The IRS Applicable Federal Rate (AFR) for the month you start SEPP. Typically the 120% Federal Mid-Term Rate. For 2026, expect ~4-5%.
• Spouse's Age: If using joint life expectancy (reduces payments but extends the payout period).

Comparing the Methods

Generally: (1) Fixed Amortization gives the highest payment, (2) Fixed Annuitization gives a slightly lower payment, (3) RMD Method gives the lowest (and variable) payment. If you need the highest income, use Fixed Amortization. If you want flexibility, use RMD Method.

Tax Withholding

SEPP payments are subject to income tax (federal and state). You can choose to have tax withheld or pay estimated taxes. Unlike early withdrawals (which add 10% penalty), SEPP payments have no penalty — only income tax.