What is a 72(t) SEPP?

Rule 72(t) lets you take 'substantially equal periodic payments' from an IRA at any age without the 10% early-withdrawal penalty — in exchange for locking into that exact payment schedule for five years or until age 59½, whichever is longer. Payments are still ordinary taxable income; only the penalty is waived.

What happens if I break a 72(t) schedule?

The 10% penalty applies retroactively to every payment you've taken under the schedule, plus interest — even if the break was accidental. It's one of the few IRS commitments with retroactive teeth, which is why most people who have another option (a taxable bridge, a Roth conversion ladder) use the other option.

What interest rate can I use?

Under IRS Notice 2022-6, 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. A higher rate produces a larger payment under the amortization method.

Do I have to commit my whole IRA?

No — and you usually shouldn't. The schedule binds only the account it's calculated on, so the standard sizing move is to split the IRA first and start the 72(t) on a right-sized piece, leaving the rest flexible.

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72(t) SEPP Calculator

Rule 72(t) unlocks your IRA at any age without the 10% penalty — in exchange for a rigid multi-year commitment. See your payment under the two closed-form IRS methods, and the catches in full. Everything runs in your browser.

IRA balance to commit

Your age at first payment

Interest rate (≤ the cap)

Fixed amortization payment — the usual pick

RMD method (year one)

Per month

Locked in until

—

The catch, in full: once started, you must take this exact payment every year until the lock ends. Modify or miss it — even by accident, even in a crash — and the IRS applies the 10% penalty retroactively to every payment you've taken, plus interest.

Worth knowing: "penalty-free" is not "tax-free" — SEPP payments are ordinary taxable income. The rate is capped at the greater of 5% or 120% of the federal mid-term rate (IRS Notice 2022-6); check the current AFR before relying on a rate above 5%. The third IRS method (fixed annuitization) needs the IRS mortality table and typically lands just below the amortization figure — it isn't faked here.

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 formula, and a worked example

Payment = balance × r ÷ (1 − (1 + r)^−n)

where r is your chosen rate and n your single-life expectancy from the IRS table (post-2022 version). Example: $1,000,000 at age 53 (33.4-year factor) at 5% → $62,190 per year — matching published worked examples to the dollar.

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.

Common questions

Is a 72(t) better than a Roth conversion ladder?

They solve the same problem with opposite trade-offs. The ladder needs ~5 years of accessible savings while rungs season but stays flexible forever; the SEPP starts paying immediately but locks you in with retroactive penalties. Money now and rigid → 72(t). Runway and flexibility → ladder. Many early retirees use the ladder precisely because life rarely cooperates with a decade-long fixed schedule.

Can I stop the payments if I go back to work?

Not without triggering the retroactive penalty on everything taken so far. The schedule doesn't care that your circumstances changed — that's the deal you struck. (The one sanctioned change: a one-time switch to the RMD method, which lowers but doesn't stop payments.)

Does this work on a 401(k)?

SEPPs technically apply to 401(k)s only after leaving the employer, and most people roll to an IRA first anyway for control. Note the separate Rule of 55: leave your job in or after the year you turn 55 and that employer's 401(k) unlocks penalty-free with no SEPP needed — check it before committing to a 72(t).

Why does my age matter so much?

Two ways: a younger age means a longer life expectancy (smaller payment per dollar committed) and a longer lock (payments must run to 59½). At 45 you'd commit to ~14½ years of fixed payments; at 55, only five (to 60). The commitment cost falls sharply with age.

A SEPP is a tactic — test it inside the whole plan

Tesserae models early retirement end to end: which accounts you can actually reach before 59½, whether your bridge holds, Roth conversion ladders, taxes, Social Security, and the odds your money lasts. Privacy-first: you enter your own numbers, and we never touch your bank login.

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