72(t) SEPP Calculator

What 72(t) actually buys you — and what it costs

Retirement accounts normally charge a 10% penalty on withdrawals before 59½. Section 72(t) of the tax code carves out an exception: take "substantially equal periodic payments" — a precisely computed amount, every year, no more and no less — and the penalty is waived at any age. The price is rigidity. Once payments start, you're locked in for five full years or until 59½, whichever is longer. Start at 50 and you're committed to age 59½; start at 58 and you're committed to 63.

That rigidity is why 72(t) sits last on most early-retirement toollists, behind a taxable bridge and the Roth conversion ladder: those can flex with your life, a SEPP cannot. It shines in one specific situation — substantial IRA savings, thin taxable savings, and a need for income now.

The two methods this page computes

Fixed amortization — the popular one, because it pays the most: your balance amortized as a level payment over your IRS single-life expectancy at your chosen rate, like a mortgage in reverse. Computed once, then identical every year.

Required minimum distribution method — balance ÷ life expectancy, recalculated every year on the new balance and factor. It pays less — around half as much at a 5% rate, closer to three-quarters at low rates — and it moves with the market. Per IRS rules you may switch to it from the amortization method once — the escape hatch if markets fall and the fixed payment starts draining the account too fast.

The sizing move most people miss

The schedule binds the account, not you. Split your IRA into two before starting, and the SEPP commits only the piece it's computed on — the rest stays flexible for emergencies or later planning. Work backwards: decide the annual income you need, then size the committed IRA to produce exactly that.

Where does a 72(t) fit among the early-access options?

A SEPP is one of four established ways to reach retirement money before 59½ without the 10% penalty. It helps to see the whole menu, because each option costs something different.

Roth contribution withdrawals are the freebie: the money you contributed to a Roth IRA — not its growth — can come out any time, tax- and penalty-free. It's a limited pool, only what you put in over the years, and every dollar pulled is a dollar that stops compounding tax-free.

The Roth conversion ladder is the planner's tool. Each year, convert a slice of a Traditional 401(k) or IRA to Roth, pay ordinary income tax on the conversion — cheap in a low-bracket early-retirement year — and after a five-year seasoning period that converted amount is withdrawable penalty-free at any age. The catch: it takes roughly five years of accessible savings to live on while the first rungs season. And the ladder only makes sense in low-tax years; converting at a high working rate to dodge a 10-point penalty can cost more than the penalty itself.

The Rule of 55 is the timing play. Leave the job you're currently at — quit, retire, or laid off — in or after the year you turn 55, and that employer's 401(k) unlocks penalty-free. Only that plan, not IRAs or old 401(k)s, which is why people planning around it avoid rolling that 401(k) into an IRA before leaving.

A 72(t)/SEPP is the commitment. It works at any age and doesn't need Roth history or a specific job exit — but once started, the schedule is locked for five years or until 59½, whichever is longer, and breaking it applies the penalty retroactively to every withdrawal, with interest. Most people who have the other options use the other options. It shines when the savings are almost all in an IRA and income is needed now.

These layer on top of a plain taxable bridge, not instead of it. None of them is "the answer" — the right mix depends on where the money already sits.

Common questions