In a perfect world, when you open an individual retirement account (IRA), you won't make withdrawals before the age of 59 ½.
However, life does not always go according to plan.
In most cases, if you withdraw funds from your IRA before the age of 59 ½, the Internal Revenue Service will consider it an early distribution. That means your funds are subjected to regular income taxes as well as an additional 10% penalty.
However, this is not true in all cases.
You down with SEPP?? (Yeah you know me) ...
If you are facing a short-term financial crisis, an early IRA withdrawal should not be your first course of action. However, if you are considering using your retirement account, the substantially equal periodic payment (SEPP) gives you the chance to take an early distribution without having to pay hefty taxes.
But you have to make sure you understand the SEPP rules.
Rule 72(t) refers to code 72(t), section 2, which specifies exceptions to the early-withdrawal tax that allow IRA owners to withdraw funds from their retirement account before age 59½, as long as SEPP regulations are met.
There are some things to know before you opt for using the SEPP method for an early IRA distribution. These include:
The IRS has three approved ways of calculating your SEPP amounts. All three can result in varying payments. By offering these various calculation methods, the IRS allows you to pick the repayment plan that works best for you. These options include Amortization, Annuitization, and Required Minimum Distribution (RMD) methods.
Reach out if you want to know more. We can answer your questions!
Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.
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