Substantially Equal Periodic Payments

Substantially Equal Periodic Payments are available to anyone who desires distributions from their qualified plan prior to age 59-1/2 to avoid the 10% early distribution penalty (IRC Sec. 72(t)(2)(A)(iv)). This exception was initiated with the Tax Reform Act of 1986. Beware that there are restrictions to the Substantially Equal Periodic Payments exception listed below:

• Payments must be made at least annually.
• A series of distributions begun before age 59-1/2 must continue unchanged for 5 years or until you reach age 59-1/2, whichever is later. If death or disability occurs during this 5-year period, this restriction is waived.
• Payments must be scheduled over your single life expectancy or over the joint life expectancy of you and your designated beneficiary. The oldest primary beneficiary's age must be used for determining minimum distributions.
• The Internal Revenue Code states that once the payment schedule is established, if the series of payments is modified in any way (other than by reason of death, disability, or a one-time change to the Life Expectancy method), the 10% early distribution penalty tax, plus interest, will be retroactive, beginning with the first year of distribution.