SEPP Fixed Amortization Method Under IRC §72(t): Rules and Payments

The fixed amortization method under IRC §72(t) lets you draw a level annual amount from a retirement account before age 59½ without the usual 10% early distribution penalty. You run the calculation once from three inputs — account balance, a life expectancy factor, and a permissible interest rate — and that dollar figure is then fixed for the life of the plan. Get any input wrong, or touch the account outside the schedule, and the IRS can retroactively apply the 10% penalty to every distribution you’ve already taken, with interest.¹

Which Accounts Qualify

The substantially equal periodic payments (SEPP) exception applies to traditional IRAs, SEP IRAs, SIMPLE IRAs, and employer plans such as 401(k)s and 403(b)s.¹ If the money is in an employer plan, you must have separated from service before the first distribution. IRA owners have no such requirement and can begin payments while still working.

A SEPP is tied to one specific account. You cannot combine balances across accounts into a single calculation; each account you draw from runs its own series with its own math and its own compliance clock. If you want to pull from more than one, one practical option is to consolidate the accounts you plan to use into a single IRA before the first distribution. Once payments begin, no money can go into the SEPP account and no distribution can come out of it beyond the scheduled amount.

The Three Inputs

The formula needs exactly three data points, and each one is locked in once payments begin.

Account Balance

Use the fair market value of the account as of a date within a specific window: from December 31 of the year before your first distribution through the date of that first distribution.² Most people use the prior year-end statement because it is a clean, documented number. Keep that statement — you may need to produce it years later.

Life Expectancy Table

You choose one of three IRS tables, and the choice controls the divisor in the formula:¹

Single Life Table, based on your age alone, produces the shortest payout period and the largest annual distribution.
Uniform Lifetime Table assumes a beneficiary exactly ten years younger and stretches the payout period, reducing each payment.
Joint Life and Last Survivor Table uses the actual ages of you and your designated beneficiary. When the beneficiary is significantly younger, this produces the longest payout period and the smallest annual amount.

A longer life expectancy means a smaller annual withdrawal. The table choice is permanent for the life of the SEPP, so model all three before committing.

Interest Rate

The rate is capped at the greater of 5% or 120% of the federal mid-term rate for either of the two months immediately preceding the month of the first distribution.² The 5% floor was introduced by Notice 2022-6: even when the mid-term rate sits well below 5%, you can still use up to 5%. As of April 2026, 120% of the mid-term rate is roughly 4.59%, so the 5% floor currently governs.

You can use any rate from zero up to the cap. A higher rate produces a larger payment; a lower rate stretches the account further. An aggressive rate drains the account faster, which becomes a problem if markets fall while the fixed payment stays the same.

How the Payment Is Calculated

The fixed amortization method divides the account balance by an annuity factor built from the chosen life expectancy and interest rate. The annuity factor is the present value of one dollar per year for the number of years in the chosen life expectancy, discounted at the selected rate. It is the same math as a mortgage payment, running in reverse.

The IRS uses this example: an account owner with a $400,000 balance, a Single Life Table expectancy of 36.2 years, and an interest rate of 4.0% has an annuity factor of 18.9559. Dividing $400,000 by 18.9559 gives an annual distribution of $21,102.¹ That $21,102 is then the exact amount withdrawn every year for the life of the SEPP. Not $21,103. Not $21,000.

Because the payment locks in, a small error in any input produces a wrong annual amount that the IRS can treat as a modification. Running the math through a qualified financial calculator, or having a CPA verify the annuity factor before the first distribution, is cheap insurance.

Setting Payments Up With the Custodian

After the calculation, contact the institution holding the account to set up the distribution schedule. Most custodians have specific 72(t) election forms. Specify the exact annual dollar amount and a payment frequency — monthly, quarterly, or annual. Frequency does not change the total; it just splits it.

Set federal and state withholding at a level that fits your overall tax picture. The gross distribution must equal your calculated amount regardless of what gets withheld. A net deposit that looks off because of withholding is not an error in the SEPP itself; the IRS looks at the gross figure.

The most important administrative detail is the code on your annual Form 1099-R. The custodian should report SEPP payments using Code 2 in Box 7, which tells the IRS the distribution qualifies for an exception to the early withdrawal penalty.³ Verify this on the first 1099-R you receive. If the custodian uses the wrong code, file Form 5329 to claim the exception manually.⁴ Keep copies of the original calculation, the election form, and every annual statement.

How Long Payments Must Continue

SEPP payments must continue without modification until the later of two dates: five full years after the first distribution, or the date you turn 59½.¹ “Whichever is longer” is the key phrase. Start at age 52 and payments must continue until 59½, roughly seven and a half years. Start at 57 and they must continue five full years until age 62, even though you pass 59½ during that window. Start at 54½ and both thresholds land together.

Every year within the required period, the exact calculated amount must come out of the account. Not more, not less.

The One-Time Switch to the RMD Method

Notice 2022-6 provides one safety valve: in any year after the first, you can switch from the fixed amortization method to the required minimum distribution method, and the IRS will not treat the change as a modification.² The switch exists because a fixed payment can become unsustainable after a market decline: you are still locked into the same dollar withdrawal from a smaller account. The RMD method recalculates the payment each year based on the current balance and updated life expectancy, so payments naturally shrink when the account does.

The switch is permanent and one-directional. Once you move to the RMD method, any attempt to switch back — or to any other method — counts as a modification and triggers the recapture penalty.

What Counts as a Modification

Once the series begins, you cannot add money to the account or take any distribution beyond the scheduled SEPP payment.¹ Actions that bust a SEPP include:

Taking an extra withdrawal, even a small one, outside the schedule.
Making a contribution or rolling money into the SEPP account.
Changing the annual payment amount, outside the one-time switch to the RMD method.
Skipping a required payment or failing to take the full annual amount in any year.

Investment gains and losses inside the account do not trigger a modification; the IRS explicitly exempts changes due to investment experience.¹ The balance will fluctuate; the payment stays the same. Watch for advisory or custodian fees deducted directly from the account. If those are treated as distributions, they can create a problem. Many advisors pay account management fees from a separate, non-SEPP account to avoid the ambiguity.

When the Series Can End Early Without Penalty

Three situations allow a SEPP to end early without recapture:

Death. If the account owner dies before the SEPP period ends, the modification rules no longer apply, and the beneficiary is not required to continue the schedule.¹
Disability. A qualifying disability allows modification without recapture. The IRS references the disability standard under Section 72(m)(7), which generally means an inability to engage in any substantial gainful activity due to a medically determinable condition expected to last indefinitely or result in death.
Account depletion. If the account is drained to zero and the final distribution falls short of the required SEPP amount, the IRS does not treat this as a modification and does not impose recapture.¹

The Recapture Penalty for Breaking the Rules

Modify a SEPP before the required period ends for any reason other than death, disability, or a qualified public safety officer distribution, and the IRS imposes a recapture tax. That equals the 10% early distribution penalty on every distribution taken under the SEPP, calculated as though the exception had never applied, plus interest running from the date each original distribution was received.¹

The numbers add up quickly. Take $25,000 a year for four years and then trigger an accidental modification: recapture covers 10% of $100,000, so $10,000 in penalties, plus interest on each year’s portion stretching back to when that distribution was received. The longer the SEPP has run, the larger the interest bill.

When the Series Ends Normally

Once you have satisfied the later of the five-year or age-59½ requirement, the SEPP simply expires. There is no form to file, no notice to send the IRS, and no formal termination procedure.¹ You can stop withdrawals, change the amount, take a lump sum, or keep the same schedule. The custodian should update the 1099-R distribution code going forward, but the legal obligation on your end is done.

1
Internal Revenue Service. Substantially Equal Periodic Payments
2
Internal Revenue Service. Notice 2022-6
3
Internal Revenue Service. 2025 Instructions for Forms 1099-R and 5498
4
Internal Revenue Service. Instructions for Form 5329