72(t) SEPP Method Comparison Calculator

How the 72(t) payments are calculated

A 72(t) substantially equal periodic payment, or SEPP, is one way to take early retirement distributions without the 10% additional tax when the series follows the IRS rules. Notice 2022-6 keeps the three familiar methods: required minimum distribution, fixed amortization, and fixed annuitization.

For the RMD method, the first-year payment is P = B ÷ E. B is the account balance and E is the divisor from the selected life expectancy table. This calculator uses the Single Life table, the Notice 2022-6 Uniform Lifetime appendix, or the Joint and Last Survivor table. In the projection, the RMD payment is recalculated each year using the projected year-end balance and the next age.

For fixed amortization, the payment is P = B ÷ A, where A = (1 - (1 + r)^-E) ÷ r. If the SEPP interest rate is zero, the formula becomes P = B ÷ E. Once set, this method keeps the annual payment level.

For fixed annuitization, the payment is P = B ÷ A, where A is the present value of a $1 life annuity using the mortality rates in 26 CFR 1.401(a)(9)-9(e) and the selected SEPP interest rate. The owner-only basis uses the owner life. The joint basis uses the probability that at least one covered life survives to each future payment year.

What moves the result

The selected table, age, balance, and interest rate drive the allowed payment. A longer life expectancy divisor lowers RMD payments and fixed-amortization payments. A higher permitted interest rate raises the two fixed-method payments, but Notice 2022-6 caps the rate at the greater of 5% or either of the two entered 120% federal mid-term rates.

Target-income mode reverses the same formulas. It shows the balance each method would need to produce the requested first-year income, which is useful when deciding whether one account can support the plan.

What this calculator leaves out

The projection assumes a constant return, equal installments, no fees, no taxes, no withholding, no contributions, no transfers, and no market sequence risk. It does not fetch the applicable federal rates; you must enter the correct published rates for the two months before payments begin. It also does not determine whether a beneficiary is valid under the plan rules or whether a later change is a modification.

Worked example

With the default inputs, a 50-year-old owner starts from a $400,000 account, uses the Single Life table, and selects a 5% SEPP interest rate. The Single Life divisor at age 50 is 36.2, so the first-year RMD payment is $400,000 ÷ 36.2, or about $11,050.

The fixed-amortization factor is (1 - 1.05^-36.2) ÷ 0.05, about 16.59, which gives an annual payment near $24,114. The permitted interest-rate ceiling is 5%, because the entered 120% mid-term rates are below 5%. Monthly installments divide each annual amount by 12.