SEPP / 72(t) Calculator

Substantially Equal Periodic Payments let you draw from an IRA before 59½ without the 10% penalty — at the price of a fixed payment you cannot change for years. Compute the payment, then see what committing to it does to the rest of the plan.

A 72(t) calculator that only prints the payment answers the easy half of the question. The payment is one line of arithmetic; what matters is the decade that follows it — a mandatory, fixed, fully taxable income floor sitting in every year of your projection, raising your income when you might want it low and refusing to grow when your costs do. retireclarity computes the payment and then carries it through the whole plan.

A worked schedule, computed by the engine — and you can change it

It starts on Robin, the single early retiree in the sample below: retired at 47 with a rollover IRA and a long wait until penalty-free access. Put your own balance and age in and the number moves.

Whatever it says, that payment is fixed the day it is struck. It does not recalculate when the market moves and it does not rise with inflation — and if the schedule is modified before it ends, the IRS recaptures 10% of every payment made since it began, plus interest, in one tax year.

Robin’s plan in the calculator below does not use a 72(t) — she bridges those years with a Roth conversion ladder and taxable savings instead, which is the comparison worth making. Turn a 72(t) on and the projection reprices everything downstream of it: the tax on that income floor, the ACA premium subsidy it costs in the bridge years, and the conversion room it eats.

What is a SEPP / 72(t)?

Section 72(t) of the tax code is the one that imposes the 10% additional tax on retirement withdrawals before 59½. It also lists the exceptions — and one of them is a series of substantially equal periodic payments. Commit to taking a computed amount out of an IRA every year, on a schedule, and those particular dollars escape the penalty at any age. Income tax still applies; only the 10% goes away.

It is a commitment, not a withdrawal method you can dip into. You do not choose the amount — a formula does. You cannot take more in a bad year or less in a good one. And the commitment runs for the longer of five years or until you reach 59½, which for anyone starting in their forties means well over a decade.

The three IRS methods — and which one this models

The IRS blesses three ways to compute the payment: the required minimum distribution method, which recalculates every year off the current balance; fixed amortization, which levels the balance over your single life expectancy at a chosen interest rate; and fixed annuitization, which divides by an annuity factor. Amortization normally pays the most, so it is what people who actually need the income use.

retireclarity models the amortization method only. You give it a start age and an interest rate (5% by default); it takes the single life expectancy for that age from the IRS table and amortizes the balance over it, then holds the payment fixed for the whole lock. The RMD method’s annual recalculation, the one-time switch into it, and the annuitization factor are not modeled.

The planner below does model the split. Its 72(t) card lists that person’s tax-deferred accounts and sizes the payment on the ones you tick, so a dedicated SEPP IRA sitting beside a large 401(k) produces the payment you would actually take rather than one inflated by money the schedule was never going to touch. What it still does not do is fence the account off: withdrawals come out of the pooled tax-deferred balance, so the selection caps the payment without tracking each account’s own trajectory.

The rate is the one place we now push back. You may enter any rate — the calculator uses it — but the IRS ceiling is the greater of 5% and 120% of the federal mid-term rate, which floats monthly. Type a rate above that ceiling, here or in the planner, and you get an inline note saying so, dated to the month we last read the rate. It is a warning, not a block: a schedule struck against a different month’s ruling is not wrong, and we would rather show our working than pretend a shipped constant is the law.

The rules that bite

The lock. Payments run for the longer of five years or until 59½ — the later of the two, not the earlier. Start at 57 and the five-year arm is the binding one: you keep paying past 59½. Start in your forties and 59½ is the binding one instead, which is why the sample schedule above runs 13 years — well over a decade of payments you cannot alter. (The exact end depends on your birth month, which is why the calculator above says “about” once you edit the age: it knows an age, not a birthday. The planner below knows both.)

Modification. Taking more than the schedule, taking less, or skipping a year is a modification, and the penalty is retroactive: 10% of every payment made since the schedule started, plus interest, all due at once. Rolling the account over or adding to it can also break it.

It is an income floor, not a ceiling. The money arrives whether you want it that year or not. That is taxable income you cannot duck under an ACA subsidy threshold, and it is conversion room you cannot use for a Roth conversion, every year of the lock. For someone managing income deliberately in the bridge years, that is usually the real cost — bigger than the penalty avoided.

The engine keeps the schedule. Because a modeled SEPP is never broken, you will never see recapture appear in a projection here. In real life it is the risk that should worry you most, which is why the alternatives below deserve a look first.

Read further

The full argument — the worked amortization formula, the escape hatches, and why the Rule of 55 or a Roth conversion ladder usually beats a 72(t) — is in 72(t) SEPP: the early-access tool of last resort. The Guide’s section on retiring before 59½ covers how to enter one. If the wider question is when you can leave at all, start at the FIRE calculator, or go straight to the retirement calculator.