SEPP question


Q: I’m considering retiring at the end of this year if VERA’s are offered again in my agency. I will be 54. I have two questions related to TSP withdrawls: 1. If I choose to take dollar-specified (vs. lifetime expectancy) monthly distributions from my TSP, it’s my understanding that I’ll be penalized 10 percent since I’m under 55 when I separate and since there’s not a waiver for the dollar-specified monthly payments option. Is that correct? Or is there some way to structure dollar-specified monthly distributions so as to be included in the “substantially equal payments” waiver? Would starting out with life-expectancy monthly payments from 54-59 1/2 and then switching over to dollar-specified payments after 59 1/2 be a way to avoid the penalty? 2. Assuming I do get hit with the penalty, will I be penalized 10 percent each year until I hit 59 1/2 and then, from that time on, not be penalized? Or does the penalty continue forever once it’s been “triggered” and not stop at 59 1/2?

A: There are three ways to calculate Substantially Equal Periodic Payments (SEPP). Only the life-expectancy method produces varying amounts. The other two produce fixed payment amounts. To avoid the early withdrawal penalty, your SEPP series must continue for five years or until you reach age 59 1/2, whichever is longer. The penalty is calculated year by year and will not apply to any distributions processed after you reach age 59 1/2. The rules regarding SEPP are complicated, and I suggest you seek professional guidance before proceeding down that path.


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Mike Miles is a Certified Financial Planner licensee and principal adviser for Variplan LLC, an independent fiduciary in Vienna, Virginia. Email your financial questions to and view his blog at

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