Understanding Substantially Equal Periodic Payment (SEPP)

The SEPP program is something that was developed by the federal government to allow people to access their retirement funds early. This program can give you a legitimate way to get your retirement money, but you do want to use some caution when exercising it. Here are the basics of Substantially Equal Periodic Payments.

Substantially Equal Periodic Payments

This is a program designed to allow you to gain access to the money in a retirement account without paying a 10 percent early distribution penalty. Typically, when you take money out of an IRA, 401(k) or other qualified retirement plan, you will have to pay 10 percent of the money that you take out to the government in the form of a penalty. You will also have to pay income taxes on the money that you withdraw. With the Substantially Equal Periodic Payment system, you will not have to pay any penalties or taxes on the money that you withdraw.

How it Works

With the SEPP program, you will need to set up a plan that will provide you with a regular monthly payment from your retirement funds. In order to use this plan, you will need to agree to use it for a minimum of five years. With this plan, you will have to continue using it for five years or until you reach the age of 59 1/2. You can stop using this plan at the time of whichever event takes place later. For example, if you are 35 years old when you start the program, you will have to continue taking withdrawals until you reach the age of 59 1/2. If you are 58 when you start the program, you will have to keep using it until you reach the age of 63. This means that you need to pay special attention to the rules of the program before getting involved. Otherwise, you could easily devastate your retirement account by starting the program too early.

Financial Hardships

This type of program is typically recommended only for those that are experiencing serious financial hardships. You should not embark on this program unless you have a large financial need that cannot be solved in any other manner. You are essentially borrowing money from your retirement in order to pay for today's bills. While this might help you out now, it could really hurt you in the future. With this in mind, you should not consider using the Substantially Equal Periodic Payment system unless you are experiencing a dire financial hardship.

Life Expectancy Tables

In order to determine how much of a payment you will receive with this program, the IRS uses life expectancy tables. These life expectancy tables are used to determine how much longer you have to live on average. They will assess the amount of funds that you have in your retirement account and plan your monthly payment based upon your life expectancy

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