Substantially Equal Periodic Payment (SEPP)

A Substantially Equal Periodic Payment (SEPP) is a series of payments made from an IRA or other qualified retirement plan that are designed to meet the requirements of the Internal Revenue Code (IRC). SEPPs are often used as a way to access retirement savings before reaching age 59 1/2, which is the age at which most people are required to start taking required minimum distributions (RMDs) from their retirement plans.

There are a few key requirements that must be met in order for a series of payments to qualify as a SEPP. First, the payments must be made over a period of at least 5 years, but not more than 10 years. Second, the payments must be equal in amount each year. Third, the payments must be made from a qualified retirement plan, such as an IRA, 401(k), or 403(b).

If a series of payments meets these requirements, then they will be treated as regular distributions from the retirement plan for tax purposes. This means that the payments will be taxed as ordinary income, and the taxpayer will not be subject to the 10% early withdrawal penalty.

There are a few advantages to using a SEPP to access retirement savings early. First, SEPPs can provide a source of regular income during retirement. Second, SEPPs can help to reduce the amount of taxes that are paid on retirement savings. Third, SEPPs can help to preserve the principal balance of the retirement plan, which can be important for people who are planning to leave their retirement savings to their heirs.

However, there are also a few disadvantages to using a SEPP. First, SEPPs can be complex to set up and administer. Second, SEPPs can reduce the amount of money that is available for retirement savings. Third, SEPPs can increase the risk of outliving your retirement savings.

Overall, SEPPs can be a good option for people who want to access their retirement savings early. However, it is important to carefully consider the pros and cons of SEPPs before making a decision.