Substantially Equal Periodic Payment - SEPP

AAA

DEFINITION of 'Substantially Equal Periodic Payment - SEPP'

A plan that allows individuals who have invested in an IRA or another qualified retirement plan to withdraw funds prior to the age of 59.5 and avoid income tax and early-withdrawal penalties. Typically, an individual who removes assets from a plan prior to age 59.5 will face taxes on any income generated by the fund - interest income or capital gain - and will also be subject to a 10% penalty. With substantially equal periodic payments, the funds are placed into an SEPP plan that pays the individual annual distributions for five years or until he or she turns 59.5, whichever comes last.

INVESTOPEDIA EXPLAINS 'Substantially Equal Periodic Payment - SEPP'

Because the IRS requires individuals to continue the SEPP program for a minimum of five years, this is not a solution for those who seek penalty-free short-term access to retirement funds. If you cancel the plan before the minimum holding period expires, you will be required to pay the IRS all the penalties that were waived on amounts taken under the program, plus interest. SEPP programs are not permitted under employee-sponsored qualified plans, such as 401(k) plans.

RELATED TERMS
  1. Annuity

    A financial product that pays out a fixed stream of payments ...
  2. Fixed Annuitization Method

    One of three methods by which early retirees of any age can access ...
  3. Qualified Retirement Plan

    A plan that meets requirements of the Internal Revenue Code and ...
  4. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  5. Early Withdrawal

    The removal of funds from a fixed-term investment before the ...
  6. Premature Distribution

    Any distribution taken from an IRA, qualified plan or tax-deferred ...
RELATED FAQS
  1. Once substantially equal periodic payments (SEPP) of an IRA have started, is the ...

    Typically, if you withdraw assets from an IRA or a qualified retirement plan sponsored by your employer while under the ... Read Full Answer >>
  2. Do I have to continue SEPPs for an inherited IRA?

    You may discontinue the payments. Once the person who is taking the substantially equal periodic payment (SEPP) dies or becomes ... Read Full Answer >>
  3. I will be receiving monies from a QDRO executed pursuant to my divorce. I would like ...

    There are several issues to consider: The early distribution penalty - Assets distributed from a qualified plan in accordance ... Read Full Answer >>
  4. What are the "certain requirements" that must be met for substantially equal periodic ...

    For substantially equal periodic payments (SEPPs), the distributions would occur from your IRA after you rollover the assets. ... Read Full Answer >>
  5. Will I incur a tax penalty when making withdrawls from my IRA in excess of my SEPP?

    Unfortunately, the IRA is "locked" for five years because of the requirement that the substantially equal periodic payment ... Read Full Answer >>
  6. Should I purchase a master limited partnership (MLP) in my retirement account?

    Most investors should not purchase units in a master limited partnership, or MLP, in their retirement accounts. MLPs offer ... Read Full Answer >>
Related Articles
  1. Taxes

    Tax-Saving Advice For IRA Holders

    Be informed about benefits and deductions that may apply to you and avoid costly mistakes on your return.
  2. Retirement

    Substantially Equal Periodic Payment (SEPP): Learn The Rules

    Taxpayers often make costly mistakes with SEPP programs because there is little guidance on what can be done in certain situations.
  3. Taxes

    9 Penalty-Free IRA Withdrawals

    If you need to take early distributions, find out which exemptions allow you to avoid expensive consequences.
  4. Personal Finance

    Should You Track The Cost Of Retirement Income?

    Today, workers face a challenge when saving for retirement, because retirement income is getting more expensive, and the savings are not keeping up.
  5. Mutual Funds & ETFs

    This Gold ETF is Fine for Traders, Not Investors

    A look under the hood of the Direxion Daily Gold Miners Bull 3X ETF.
  6. Retirement

    IUL Insurance: An Alternative Retirement Plan?

    Indexed universal life insurance is the rise. But critics argue that wisely allocated IRA and 401(k) funds will normally offer better returns.
  7. Personal Finance

    A Guide to Financial Education for Doctors

    Doctors need to choose the educational option which best fits his or her time, schedule and learning preference. Here's a guide.
  8. Retirement

    Some Tax Considerations For Your Retirement Income

    Even if you don’t plan to retire, it’s still a good idea to think ahead about where to live, your income and how it all interacts with Social Security.
  9. Retirement

    Track Your Retirement Money With These Apps

    Try these four mobile and online apps to stay on top of your retirement income – in brokerage accounts, IRAs, 401(k)s, even Social Security.
  10. Mutual Funds & ETFs

    Should GE Be Part of Your Portfolio?

    Here's what you need to consider if you are thinking of adding GE to your portfolio.

You May Also Like

Hot Definitions
  1. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  2. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  3. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  4. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
  5. Adverse Selection

    1. The tendency of those in dangerous jobs or high risk lifestyles to get life insurance. 2. A situation where sellers have ...
Trading Center