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. Fixed Annuitization Method

    One of three methods by which early retirees of any age can access ...
  2. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  3. Annuity

    A financial product sold by financial institutions that is designed ...
  4. Excise Tax

    1. An indirect tax charged on the sale of a particular good. ...
  5. Individual Retirement Account - ...

    An investing tool used by individuals to earn and earmark funds ...
  6. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
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. Retirement

    I will be receiving monies from a QDRO executed pursuant to my divorce. I would like to take a portion ...

    There are several issues to consider: The early distribution penalty - Assets distributed from a qualified plan in accordance with a qualified domestic relations order (QDRO) are exempted from ...
  5. Retirement

    What are the "certain requirements" that must be met for substantially equal periodic payments (SEPPs)? ...

    For substantially equal periodic payments (SEPPs), the distributions would occur from your IRA after you rollover the assets. (SEPPs are also allowed from qualified plans after the participant ...
  6. Retirement

    Once substantially equal periodic payments (SEPP) of an IRA have started, is the payment fixed each ...

    Typically, if you withdraw assets from an IRA or a qualified retirement plan sponsored by your employer while under the age of 59.5, you may owe ordinary income tax on these amounts, plus an ...
  7. Retirement

    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 (SEPP) must continue for five years or until you reach age 59.5, whichever ...
  8. Retirement

    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 disabled, the SEPP can be discontinued. For this purpose, disability ...
  9. You need to be patient, diligent and perseverant to be successful at investing, but more importantly, you need to start early.
    Investing Basics

    Why You Should Start Investing Early?

    You need to be patient, diligent and perseverant to be successful at investing, but more importantly, you need to start early.
  10. It can be great to live in the moment, but the actions and decisions you make now can greatly impact your sense of financial security down the road.
    Personal Finance

    How Do Americans Keep Minimizing Their Net Worth?

    It can be great to live in the moment, but the actions and decisions you make now can greatly impact your sense of financial security down the road.

You May Also Like

Hot Definitions
  1. Santa Claus Rally

    A surge in the price of stocks that often occurs in the week between Christmas and New Year's Day. There are numerous explanations ...
  2. Commodity

    1. A basic good used in commerce that is interchangeable with other commodities of the same type. Commodities are most often ...
  3. Deferred Revenue

    Advance payments or unearned revenue, recorded on the recipient's balance sheet as a liability, until the services have been ...
  4. Multinational Corporation - MNC

    A corporation that has its facilities and other assets in at least one country other than its home country. Such companies ...
  5. SWOT Analysis

    A tool that identifies the strengths, weaknesses, opportunities and threats of an organization. Specifically, SWOT is a basic, ...
  6. Simple Interest

    A quick method of calculating the interest charge on a loan. Simple interest is determined by multiplying the interest rate ...
Trading Center