IRS 72(t) and SEPP


Q. I just read an article on IRS 72(t) and SEPP regarding withdrawal of funds from 401(k) (TSP) and IRA prior to age 59.5. I’ve never heard of this and haven’t seen it mentioned in your column either. Is there a specific amount of withdrawal I should be taking monthly according to IRS rules and calculations in order to avoid penalties? I retired at age 55 from the U.S. Postal Service on a VERA retirement (FERS) in March. I started withdrawal of TSP in May. Does this IRS 72(t) and SEPP apply to my situation? Will I be
slapped with penalties?

A. There are three methods available for calculating the amount of the Substantially Equal Periodic Payments (SEPP) under IRS code section 72(t): 1. The amortization method; 2. The annuitization method; 3. The life expectancy method. Each of these methods will produce a unique withdrawal amount for a given year in the series and you must withdrawal exactly this amount to avoid triggering a penalty. It’s up to you to select the method, calculate the payment amount each year, and then comply with the rules governing the distributions. The rules using a series of are complex and strict. The penalty for a mistake can be severe. You should seek the help of a competent and accountable tax preparer to guide you through this process, if you choose to use it.

As long as you retired during or after the calendar year in which you reached age 55, your TSP withdrawals will be exempt from the early withdrawal penalty. There will be no need to use SEPP to avoid the penalty.


About Author

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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