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SEPP §72(t)

A SEPP §72(t) schedule takes penalty-free withdrawals from one pre-tax account before 59½. The payments are ordinary income. The account must be an IRA, a traditional 401(k) or 403(b), or a governmental 457(b). FinZot pays the schedule at step 5 of each year, alongside RMDs, because it is a commitment rather than a choice (how a year works).

How long it runs

Section titled “How long it runs”

The schedule starts when the SEPP begins and runs until the later of five years or the year the owner turns 60, FinZot’s whole-year stand-in for 59½. The end is not editable. While the schedule runs, the account is locked. No withdrawal you schedule and no conversion touches it. Shortfall selling reaches it only as the very last resort, once every other account is empty.

The two methods

Section titled “The two methods”
  • Fixed Method. The same dollar amount every year, with no inflation adjustment, as the IRS requires of a fixed schedule. This covers the fixed amortization and fixed annuitization methods, which produce the same cash flows at the planning level. Bring the amount from a 72(t) calculator. FinZot flags a payment above what the annuitization method could produce for the account.
  • RMD Method. The payment is recomputed each year as the prior year-end balance divided by the life expectancy factor for the owner’s age. It is the only method whose payment moves with the market. You choose the Life expectancy table: Single Life pays the most, Uniform Lifetime the least, and Joint & Last Survivor uses both spouses’ ages and requires a spouse. A spouse who dies still counts for that year. From the next year FinZot uses the Single Life table.

What is not modeled

Section titled “What is not modeled”

The one-time switch from the fixed method to the RMD method, a joint-life basis for the fixed method, and the rule that a qualified plan SEPP requires separation from the sponsor.

The penalty for breaking a schedule is not modeled. A real withdrawal beyond the schedule ends it and owes 10% on every earlier payment, plus interest. When shortfall selling reaches a locked account, FinZot keeps the schedule running and charges no penalty on the extra draw.