SEPP 72(t) Calculation Methods: RMD, Amortization, Annuitization

The three SEPP 72(t) calculation methods are the required minimum distribution (RMD) method, the fixed amortization method, and the fixed annuitization method. All three produce a penalty-free early withdrawal amount from the same account balance, but the dollar figures are not close: for a 50-year-old with $400,000, the RMD method yields roughly $11,050 a year while fixed amortization at 4% yields roughly $21,102.¹ The method you pick determines how much you draw, whether the payment moves with the market, and how much room you have to adjust later. Once the first payment goes out, you are locked in.

The Inputs Every Method Uses

Three numbers feed the formulas: an account balance, a life expectancy factor, and (for the two fixed methods) an interest rate. Each has a rule.

Account balance. For the fixed amortization and fixed annuitization methods, IRS Notice 2022-06 lets you use the balance as of any date from December 31 of the year before the first distribution through the actual date of that first distribution.² Most people use the prior year-end balance because a brokerage statement documents it cleanly. The RMD method uses a fresh balance every year.

Life expectancy factor. IRS Publication 590-B contains three tables: the Single Life Table, the Joint and Last Survivor Table, and the Uniform Lifetime Table.³ The Joint and Last Survivor Table applies when your spouse is your sole beneficiary and more than ten years younger. The Uniform Lifetime Table applies when your spouse is your sole beneficiary but not more than ten years younger, or when you have a non-spouse beneficiary. Many SEPP participants use the Single Life Table because its shorter life expectancies produce larger annual payments.

Interest rate. The RMD method uses no rate. For the two fixed methods, Notice 2022-06 caps the rate at the greater of 5% or 120% of the federal mid-term rate for either of the two months before the month of your first distribution.² A higher rate produces a bigger payment, so most people use the maximum permitted. As of early 2026, 120% of the federal mid-term rate sits below 5%, which makes the 5% floor the operative ceiling for most new plans. The current mid-term rate is published monthly on the IRS Applicable Federal Rates page.⁴

The Required Minimum Distribution Method

The RMD method is the simplest of the three. Divide the account balance by your life expectancy factor and the result is that year’s payment. Each year you recalculate using a new balance and your updated age-based factor.¹

Because the balance moves every year, so does the payment. A strong market year raises next year’s distribution; a bad year lowers it. That flexibility appeals to people who have other income and don’t need a fixed number. It also protects the account in downturns, since payments shrink automatically when the portfolio does.

The tradeoff is size. Using the IRS’s own example of a 50-year-old with a $400,000 balance and a Single Life factor of 36.2 years, the first-year RMD payment is about $11,050.¹ That is the lowest of the three methods by a wide margin. If you need SEPP income to cover living expenses, this method may not deliver enough.

The Fixed Amortization Method

Fixed amortization works like a mortgage in reverse. You amortize the account balance over your life expectancy at the chosen interest rate and the result is a level annual payment that stays the same for the entire SEPP period.¹ No annual recalculation, no adjustment for market performance.

Same $400,000 balance, a 4% interest rate, and a 36.2-year Single Life factor produce an amortization factor of roughly 18.9559. Dividing $400,000 by that factor yields about $21,102 a year, nearly twice the RMD figure.¹ At the 5% maximum, the payment climbs further.

The predictability is why this method is the most popular among early retirees using a SEPP as a paycheck replacement. The risk cuts both ways. In a weak market, level withdrawals erode the balance faster than expected. In a strong one, you keep withdrawing the same fixed amount while the account grows past what you’re tapping. The dollar figure does not move.

The Fixed Annuitization Method

Fixed annuitization also produces a level annual payment, but it gets there differently. Instead of an amortization factor, you divide the account balance by an annuity factor: the present value of one dollar per year for your remaining life, calculated using an IRS mortality table and your chosen interest rate.¹

The mortality figures come from Table 4 in Treasury Regulation 1.401(a)(9)-9(e), which lists the probability of death at each age from 0 through 120.⁵ You build a present-value annuity factor from those probabilities and the interest rate, then divide the balance by it. The result is typically close to the amortization number but not identical, because the two formulas weight life expectancy differently.

Like amortization, the payment is fixed for the life of the SEPP and doesn’t adjust for inflation or returns. The math is complex enough that most people rely on a specialized SEPP calculator or an actuary rather than working it out by hand. When annuitization and amortization produce similar figures, amortization is usually easier to document and defend.

How the Three Compare

Using the IRS’s 50-year-old, $400,000, Single Life example at a 4% rate:

RMD: about $11,050 in year one, recalculated each year, moves with the balance.
Fixed amortization: about $21,102 a year, locked in.
Fixed annuitization: similar range to amortization, locked in, derived actuarially.

The gap between the RMD figure and the two fixed methods is nearly double, and it matters for anyone using SEPP income to live on. The RMD method preserves the balance best in falling markets and gives up the most income to do it. The two fixed methods pay out substantially more but freeze the number at inception, so a long stretch of poor returns draws the account down faster than a variable payment would.

The One-Time Switch to RMD

Choosing a fixed method is not entirely irreversible. If you start with fixed amortization or fixed annuitization and your balance drops sharply, you can make a one-time switch to the RMD method. The change applies for the year of the switch and every year after, and it does not count as a modification.² Once you switch to RMD, any further change is a modification. It is a one-way door, but it is a real safety valve for anyone who picked a fixed method for the larger payment and then watched the market turn.

What the Method Choice Locks You Into

The calculation you set up has to keep running until the later of two dates: five full years from your first payment, or the date you turn 59½.⁶ Start at 52 and you’re committed until 59½. Start at 58 and you’re committed until 63. Whichever milestone is later governs.

Within that period, the total distributions each calendar year must equal the annual amount your method produces. Monthly or quarterly installments are fine as long as they add up correctly by year-end.¹⁶ Death, disability, and a public safety officer distribution under Section 72(t)(10) are the recognized exceptions.

That penalty structure is why the calculation is worth getting right at the outset. The RMD method sacrifices income for flexibility. The two fixed methods maximize income and lean on the one-time RMD switch as their only pressure release. Most people who need the SEPP to cover living costs choose fixed amortization; most people who have income elsewhere and want to protect the account choose RMD. The annuitization method exists for people whose situation genuinely favors an actuarial calculation, and in practice it produces a number close enough to amortization that the simpler formula usually wins.

1
Internal Revenue Service. Substantially Equal Periodic Payments
2
Internal Revenue Service. Notice 2022-06 – Guidance on Substantially Equal Periodic Payments
3
Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs)
4
Internal Revenue Service. Applicable Federal Rates
5
eCFR. 26 CFR 1.401(a)(9)-9 – Life Expectancy and Uniform Lifetime Tables
6
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts