A Legal Way to Relieve Your Finances

SEPPs can provide help for Smithtown residents.

Discussing ways you can keep the wolves at bay while you supplement your current income from your IRA's before retirement is important.

There is a section in the IRS code that may give you and your family some budget relief using money you may have accumulated in an Individual Retirement Account. This section is referred to as Section 72t – Substantially Equal Periodic Payments also known as SEPPs.

Have if you experienced:

  • A sudden loss of income?
  • Increased expenses due to debt, credit cards?
  • Or is your current income not as much as your previous income?

If so, taking SEPPs from one of your IRAs may help you overcome your current financial dilemma. You may have several 401k accounts you can rollover into a single IRA or split one IRA into 2 separate IRAs if you have significant accumulations in order to preserve some of your assets in a tax-deferred account.

Normally, any distribution from a tax-deferred account incurs a 10 percent federal penalty, in addition to ordinary taxes being paid on those withdrawals prior to your attaining the age of 59 ½. However, you can set up a 72t distribution and not have to pay the 10% federal penalty if you are under age 59 ½.

Key advantages:

  • It supplements current income.
  • You pay only ordinary income taxes on the distributions.
  • It's money you don't have to borrow because it is your asset.
  • If you are taking an early retirement, it allows you a greater array of choices financially.


  • Once you begin taking SEPPs you will have to continue taking them the longer of five years or age 59 ½.
  • Whatever calculation method you use – life expectancy, amortization, annuitization – you have to continue the longer of five years or age 59 ½.
  • Every withdrawal payment is a loss of principal affecting your compound interest in the future.
  • You may not contribute to the IRA from which you are taking SEPPs.

If you pass away the payments end and if you become disabled you may be able to change the payment amount and not be subject to the 10 percent early withdrawal penalty.

Before initiating any distributions from any tax-deferred account, make sure you consult with a tax advisor or your personal financial coach to be sure how it will impact you and your financial goals.

(Some information courtesy of http://www.irs.gov/retirement/article/0,,id=103045,00.html)


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