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Early Retirement Distributions - SEPP 2021

Tax Planning Strategy

One strategy to generate income from retirement accounts if you are under age 591⁄2 is to take periodic distributions from those accounts. If structured properly, the 10% additional tax will not be assessed on the distributions. You can take distributions from various retirement accounts such as 401(k) plans, 403(b) plans, and IRAs.

Substantially Equal Periodic Payments (SEPP)

The Internal Revenue Code allows you to take withdrawals from retirement accounts without incurring the 10% penalty. To do so, very specific rules need to be followed.

  •  The payments made to you from the IRA are based on one of three calculation methods.
  •  The payments must be made to you at least annually during the payment years. Payments can be made more frequently, such as monthly, but the total for each year during the SEPP period must meet the payment calculation result for the year or years during the SEPP.
  •  Payments must be made for a period of at least five years or until you reach age 591⁄2, whichever is later.

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