72(t) SEPP: Penalty-free withdrawals before 59½
Guide · By Kevin Lan · Updated September 2026
A 72(t) SEPP, or substantially equal periodic payments, lets you tap a retirement account before 59½ without the 10% penalty, in exchange for committing to a fixed withdrawal schedule.
What a 72(t) SEPP is
A 72(t) SEPP is a series of substantially equal periodic payments taken from an IRA (or a former employer's 401(k)) that are exempt from the 10% early-distribution penalty. Named for the section of the tax code that authorizes it, it lets an early retiree draw tax-deferred money before 59½ without the penalty. The withdrawals are still taxed as ordinary income; it is the penalty that is waived.
The three IRS calculation methods
The IRS sanctions three ways to compute the annual payment:
- Required minimum distribution method: recalculated each year from your balance, so the payment varies and is usually the smallest.
- Fixed amortization method: a level annual amount, amortizing the balance over your life expectancy at an IRS-specified interest rate.
- Fixed annuitization method: a level amount based on an annuity factor. Amortization and annuitization produce larger, fixed payments.
The amortization and annuitization methods use an interest rate the IRS caps; under Notice 2022-6, you may use a rate up to the greater of 5% or 120% of the federal mid-term rate. You're allowed one one-time switch to the RMD method.
How much a 72(t) pays
A 72(t) on a $500,000 IRA at age 50 pays roughly $13,800 a year under the RMD method, or about $30,200 a year under fixed amortization. The payment scales with your balance and rises with your age and the interest rate you use. The figures below are illustrative: they assume age 50, the IRS Single Life Table (a 36.2-year factor), and a 5% interest rate. Your own factors will differ, and the fixed annuitization method produces a level payment close to the amortization figure.
| IRA balance | RMD method (first year, varies) | Fixed amortization (level) |
|---|---|---|
| $250,000 | About $6,900 | About $15,100 |
| $500,000 | About $13,800 | About $30,200 |
| $750,000 | About $20,700 | About $45,200 |
| $1,000,000 | About $27,600 | About $60,300 |
The trade-off is visible in the two columns. Fixed amortization gives you the larger, predictable check but locks it in; the RMD method pays less and recalculates with your balance each year, which lowers the risk of draining the account. If the fixed payment is more than you need, size a separate IRA to the SEPP so the schedule binds only that account.
The commitment: the longer of 5 years or 59½
Once started, the payments must continue, unchanged, for the longer of five years or until you reach 59½. Begin at 50 and you're committed until 59½, nearly a decade. Begin at 57 and you continue five years, to 62. There is no early exit for a change of heart.
The penalty for breaking it
This is the risk that makes a 72(t) a serious commitment. If you modify the schedule, taking more or less than the calculated amount, or stopping early for any reason other than death or disability, the IRS retroactively applies the 10% penalty to all the SEPP distributions you've already taken, plus interest. The rigidity is the price of the exemption.
When a 72(t) fits, and a safeguard
A SEPP suits early retirees whose savings are mostly in tax-deferred accounts and who want a predictable, penalty-free income stream to 59½. It fits less well if you value flexibility, in which case taxable savings, Roth contributions, and a Roth conversion ladder come first. A common safeguard is to split off a separate IRA sized to fund exactly the SEPP you need, so the schedule is locked to that account rather than your entire balance. This is educational information, not tax advice. A 72(t) is unforgiving if set up wrong, so work it through with a qualified professional.
References
- Internal Revenue Service. FAQs regarding substantially equal periodic payments; methods and interest-rate rules updated by IRS Notice 2022-6. irs.gov
- Internal Revenue Service. Retirement topics: exceptions to tax on early distributions. irs.gov
- Internal Revenue Service. Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs). irs.gov/publications/p590b
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Frequently asked questions
What is a 72(t) SEPP?
A 72(t) SEPP (substantially equal periodic payments) is an IRS-sanctioned way to withdraw from an IRA or 401(k) before 59½ without the 10% early-distribution penalty, by taking a fixed series of payments calculated by one of three approved methods.
How long do 72(t) payments have to continue?
For the longer of five years or until you reach 59½. Starting at 50 means continuing until 59½; starting at 57 means five years, to 62. The schedule can't be changed during that period without penalty.
What happens if I break a 72(t) SEPP?
Modifying or stopping the schedule (other than for death or disability) triggers a retroactive 10% penalty on all prior SEPP distributions, plus interest. One one-time switch to the RMD method is allowed and is not treated as a modification.
Which 72(t) method gives the largest payment?
The fixed amortization and fixed annuitization methods generally produce larger, level payments than the required-minimum-distribution method, which is recalculated yearly and is usually smaller but more flexible.
How much can I withdraw with a 72(t) SEPP?
It depends on your balance, age, and method. As an illustration, a $500,000 IRA at age 50 supports roughly $13,800 a year under the RMD method, or about $30,200 under fixed amortization, using a 5% interest rate. Larger balances, older ages, and higher rates raise the payment.
What interest rate can I use for a 72(t)?
Under IRS Notice 2022-6, the amortization and annuitization methods may use any rate up to the greater of 5% or 120% of the federal mid-term rate for either of the two months before payments begin. The RMD method does not use a chosen rate.
Can I set up a 72(t) on only part of my IRA?
Yes, and it is a common safeguard. You split off a separate IRA sized to fund exactly the SEPP you need and base the schedule on that account alone, which leaves the rest of your savings free of the fixed-payment commitment.
