What are "Substantially equal periodic payments(SEPP)" as an exception to the early withdrawal on a retirement account?

[emvk114]

I am disabled but have been denied SSD. I'm withdrawing the same amount monthly to cover general expenses. Does this qualify as an exception?

[Rainman12]

<a rel="nofollow" target="_blank" href="https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-substantially-equal-periodic-pa...> = IRS FAQ for SEPP

[Hal_Al · Accepted solution]

Yes, as long as you keep doing it and the amount meets the IRS rules. Once you begin taking SEPPs, you must receive at least one payment a year for five years or until you reach age 59-1/2, whichever is longer.  See https://personal.vanguard.com/pdf/s164.pdf

 When the longer period is over, you can change the payment amount or stop withdrawing entirely.

On the hand, you may meet the disability exception. Being denied SSD does not, alone, mean you aren’t disabled.

 No specific medical diagnosis constitutes disabled to tax purposes.

 “The term ‘disability’ means, with respect to an individual –

               (a)          a physical or mental impairment that substantially limits one or more of the major  life activities of such individual;

               (b)          a record of such impairment; or

               (c)          being regarded as having such an impairment.”

 For the IRS, disabled means -

"an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require. "

I believe the substance of that paragraph is that it is your Doctor's decision

1.  He or she cannot engage in any substantial gainful activity because of a physical or mental condition and

2.  A doctor determines the condition has lasted or can be expected to last continuously for at least a year or can lead to death.

[dmertz]

The IRS has specified three methods of calculating the amount of the payments in a SEPP plan (aka, 72(t) plan).  Unless the amounts being distributed correspond precisely to one of the required calculation methods, a calculation that is generally performed by the plan administrator when setting up the SEPP plan, the regular distributions do not qualify as an exception to the early-distribution penalty.

[emvk114]

Thank you!

[macuser_22]

And a SEPP plan set up by the administrator would usually have a code "2" in box 7 on the 1099-R that would automatically exempt it from the 10% penalty.