How is the annual payment calculated under a 72(t) SEPP plan?

The IRS allows three methods to compute your substantially equal periodic payments: the required minimum distribution method, the fixed amortization method, and the fixed annuitization method. All three use your account balance, your life expectancy from IRS tables, and an interest rate that cannot exceed a rate the IRS ties to current market rates. The amortization and annuitization methods produce a fixed dollar amount each year, while the RMD method recalculates annually and usually yields a smaller, fluctuating payment. Higher allowable interest rates let you take larger payments, which is why the environment matters. Once you start, you generally must continue the exact schedule for five years or until age 59.5, whichever is longer, or face retroactive penalties plus interest. Because the rules are unforgiving, most people set up a 72(t) with a tax professional and only on a portion of their IRA.