Email FacebookTwitterMenu burgerClose thin

Ask an Advisor: My Wife and I Want to Retire Early. How Many Different SEPPs Can We Have?


My wife and I plan to retire before age 59 ½. How many different 72(t)s can a household utilize? For example, if I have two traditional IRAs at two separate brokerages, can I take substantially equal periodic payments from each or do I need to consolidate them into one first? Since we file our taxes jointly, can my wife and I each use a 72(t) on our IRAs?

– Don

The quick answer to both of your questions is yes. You can take substantially equal periodic payments (SEPP) from more than one IRA. And two spouses can each take SEPPs from their own IRAs. The IRS guidelines specify that a taxpayer cannot have more than one SEPP for a single account, so you won’t be able to have more than one series of payments from the same IRA.

Practically, though, a strategy of doing this with multiple retirement accounts may not make sense based on the strict IRS rules that govern SEPP distributions. Talk with a financial advisor before creating your SEPP plan to make sure you don’t end up facing stiff IRS penalties.

How Section 72(t) Affects Retirement Account Distributions

There’s a special section of the Internal Revenue Code that discusses penalty-free access to retirement plans like IRAs and 401(k)s before age 59 ½. Without these exceptions, money you take out before age 59 ½ will be subject to regular income taxes plus a 10% early withdrawal penalty. Those penalties can add up and more quickly deplete your retirement savings.

The exceptions include things like:

  • Disability
  • Buying your first home
  • Excessive medical expenses
  • Substantially equal periodic payments

Anyone with an IRA can set up a SEPP, but you can typically only do this with a 401(k) if you no longer work for that company. And if you decide to go this route, make sure you fully understand and comply with all of the IRS requirements to avoid even steeper penalties. (Consider speaking with a financial advisor about the best strategies for your own retirement.)

How SEPPs Work

A woman and her husband explore taking substantially equal periodic payments so they can retire early.

Just like the name indicates, you can take a series of substantially equal periodic payments – or SEPP – from your retirement account without facing the 10% early withdrawal penalty. The payments have to be taken at least annually, but you can break them up into multiple withdrawals during the year as long as the total is the exact amount of that year’s SEPP. Proper SEPP withdrawals won’t be subject to early withdrawal penalties but they will be taxed normally based on your particular income tax situation.

Whether or not you still need them, you must take these payments for at least five years or until you turn 59 ½, whichever occurs later. For each retirement account you have, you can only have one SEPP in effect. And you can’t make any changes to the arrangement except in the case of death or disability.

Once you’ve begun the SEPP process on any IRA or 401(k) account, you also cannot take any additional money out of the same account or put any money into it. Doing that invalidates the SEPP, reinstates the early withdrawal penalties for all years and tacks on an extra recapture tax. (A financial advisor can help you determine whether a SEPPs withdrawal strategy is appropriate for you.)

Calculating SEPP Withdrawals

When it comes to calculating your SEPPs, you have three IRS options:

  1. Required minimum distributions (RMDs)
  2. Fixed annuitization
  3. Fixed amortization

All three options require using a life expectancy or mortality table as specified by IRS Notice 2022-6. If interest is involved in the calculation, use either 120% of the federal mid-term rate (also called the applicable federal rate) preceding the first withdrawal or 5% – whichever is greater.

  • RMD method: The SEPP is calculated by dividing the retirement account balance (as of December 31 of the prior year) by the life expectancy factor from the applicable table. The amount gets calculated the same way every year using the updated account balance and taxpayer age. As a result, each year’s payment will be different.
  • Fixed annuitization: For this method, the account balance gets divided by an annuity factor that’s based on the chosen interest rate and mortality rate from the IRS table, resulting in equal annual payments.
  • Fixed amortization: This approach gives you even payments over a specific number of years (the duration of the SEPP) by using an amortization factor that’s based on the chosen interest rate and life expectancy. The end-of-year retirement account balance gets divided by that factor to determine the annual amount.

(These calculations can seem confusing, so it makes sense to work with a financial advisor to work out which method and rate assumptions will best suit your needs.)

SEPPs by the Numbers

A couple looks over their retirement plan to determine if they can retire before age 59 ½.

Looking at an example with numbers can clarify all of the IRS SEPP lingo. Let’s say our taxpayer, Denise, has just turned 50 and would like to begin taking a SEPP in 2024. Her IRA balance as of Dec. 31, 2023 was $500,000. She chooses an interest rate of 4% and uses her single life expectancy of 36.2 years.

Her annual payments under each method would be:

  • RMDs: $13,812.15 (for the current year only)
  • Annuitization: $27,537.89 (using an annuitization factor of 18.1568)
  • Amortization: $26,277 (using an amortization factor of 18.9559)

Denise needs to choose which method to use over the next 9 ½ years to meet her current needs. She’ll also need to consider her future retirement needs, other income streams and tax situation before deciding. If this were Denise’s only available retirement account, she might choose to split her SEPPs into more than one payment to give her more financial flexibility.

If circumstances change, Denise could make a one-time switch in calculation methods. But she would still be required to take her SEPP withdrawals or risk significant IRS penalties.

Common Mistakes Taxpayers Make With SEPPs

If you decide to use the SEPP method to take money out of your retirement account before age 59 ½, be aware of these common mistakes. Any one of them can invalidate your SEPP, causing additional taxes and penalties:

  • Making additional withdrawals from the account
  • Making any contribution to the account
  • Not taking the exact amount of your SEPP
  • Calculating the annual payment incorrectly
  • Stopping the SEPP withdrawals too soon

(A financial advisor may be able to help you avoid these costly mistakes and potentially find alternative options for generating retirement income.)

Bottom Line

Taking SEPP withdrawals can help you avoid paying early withdrawal penalties, but it’s easy to make mistakes that result in even bigger penalties. While you can take SEPPs from multiple retirement accounts, that opens the door to more potential errors and more potential tax issues.

Retirement Planning Tips

  • Social Security plays an integral role in the retirement plans of most Americans. SmartAsset’s Social Security calculator can help you plan for these benefits and determine how much you may receive at different claiming ages.
  • A financial advisor can help you make a plan for generating income in retirement. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.

Michele Cagan, CPA, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. Got a question you’d like answered? Email and your question may be answered in a future column. Questions may be edited for length and clarity.

Please note that Michele is not a participant in the SmartAdvisor Match platform.

Photo credit: ©, © Prasertthai