How to Use SEPP and Not Destroy Your Retirement

The SEPP program can provide a way for those with a retirement account to access their funds before they reach the age of 59 1/2. However, many investors that have used this program find that they have effectively destroyed their retirement. Here are a few things to consider about the SEPP program and how to avoid hurting your chances at retirement.


The term "SEPP" stands for Substantially Equal Periodic Payment. This is a program that was instituted by the IRS in order to allow people to access their retirement funds before they reach the traditional retirement age. With this plan, you will not have to pay the standard 10 percent early distribution penalty that you ordinarily would have to pay if you accessed your retirement funds. You also will not have to pay income taxes on the money while you are in the program. 

When to Consider Entry

Although this program will allow you to access your funds without penalty, you should carefully consider when you get into the program. With the current rules of the program, you could easily get involved too quickly. If you get involved too soon, you can quickly go through most of your retirement funds.

When you start this program, you have to stay in it for a minimum of five years. According to the rules, you have to stay in the program for five years or until you reach the age of 59 1/2. Whichever event takes place last is when you can stop the program. For example, if you get involved when you are 58 years old, you will have to stay in the program until you reach the age of 63. If you are 40 years old when you enter the program, you will have to stay in it until you reach the age of 59 1/2. This means that you will be taking equal payments out of your retirement for 19 1/2 years in the second example. In this case, you would basically deplete any retirement funds in the account.

With this in mind, you should carefully consider when you get involved with the program. In most cases, you should not consider doing this until you reach the age of 55. If you get involved before that, you will be using up your retirement funds too quickly.

How to Use the Program

When considering using this program, you should take some time to consider your motives. You should think about doing the SEPP program only if you have a dire financial need. If something comes up that you cannot possibly pay for any other way, this program can be beneficial. It will allow you to avoid paying 10 percent of your money to the IRS in penalties. It will also provide you with a source of income that you do not have to pay taxes on. However, it will lower the amount of money that you have available during your retirement years. Therefore, you should consider using this program only if you cannot see any other way to pay for some type of financial emergency.

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