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. Excise Tax

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

    An investing tool used by individuals to earn and earmark funds ...
  5. 401(k) Plan

    A qualified plan established by employers to which eligible employees ...
  6. Internal Revenue Service - IRS

    A United States government agency that is responsible for the ...
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. 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 >>
  5. 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 >>
  6. How do gains from my 401(k) figure into my taxable income?

    Capital gains from a 401(k) account figure into taxable income in that capital gains are taxed at the ordinary income rate ... 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. Retirement

    Top Reasons Not to Roll Over Your 401(k) to an IRA

    Five cases in which keeping your plan in place – or employing another non-IRA strategy – is the better move.
  5. Professionals

    Is Your Financial Advisor Looking Out for You?

    Financial advisors sometimes aren't looking out for clients' best interests. Regulators are scrutinizing their practices; investors should too.
  6. Professionals

    How Advisors Can Help Expectant Couples

    Bringing a child into the world makes parents more acutely aware of their finances. Here's how advisors can help expectant couples prepare.
  7. Savings

    Interest Rates and Your 401(k): How They Tango

    Here's how a rise in interest rates will likely impact your 401(k).
  8. Investing Basics

    Got Dividends? Here's How to Reinvest Them

    Reinvesting dividends is almost always a good idea if you intend to hold your shares for the long term, and there are several ways to do it.
  9. Investing

    How to Protect IRAs from Higher Interest Rates

    Rising interest rates don’t have to translate into investment losses in an IRA. Here's how you can protect your investments.
  10. Retirement

    Why Millennials Should Invest in a Roth IRA

    Saving for retirement is important, and it's important to start early. A Roth IRA is a great option for low-earners just entering the workforce.

You May Also Like

Hot Definitions
  1. Topless Meeting

    A meeting in which participants are not allowed to use laptops. A topless meeting organizer can also ban the use of smartphones, ...
  2. Hedging Transaction

    A type of transaction that limits investment risk with the use of derivatives, such as options and futures contracts. Hedging ...
  3. Bogey

    A buzzword that refers to a benchmark used to evaluate a fund's performance. The benchmark is an index that reflects the ...
  4. Xetra

    An all-electronic trading system based in Frankfurt, Germany. Launched in 1997 and operated by the Deutsche Börse, the Xetra ...
  5. Nuncupative Will

    A verbal will that must have two witnesses and can only deal with the distribution of personal property. A nuncupative will ...
  6. OsMA

    An abbreviation for Oscillator - Moving Average. OsMA is used in technical analysis to represent the variance between an ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!