72(t) Distribution Rules: Avoid Costly SEPP Mistakes

You must continue SEPP distributions for the longer of 5 years or until you reach age 59½.

Once you start SEPP, you cannot modify the payment amount (with one exception).

• **No increases**: Can't take more than calculated amount
• **No decreases**: Can't take less than calculated amount
• **One exception**: Can switch to RMD method once
• **RMD is permanent**: Can't switch back after choosing RMD
• **Timing matters**: Must take annual distribution (but can vary timing within year)

Strict rules govern what you can and cannot do with a SEPP IRA.

• **No contributions**: Don't add money to SEPP IRA
• **No transfers out**: Don't move money to another IRA
• **No rollovers in**: Don't roll money into SEPP IRA
• **Investments OK**: Can change investments within the IRA
• **Beneficiary changes OK**: Can update beneficiaries
• **Multiple IRAs**: Can have separate non-SEPP IRAs

These actions will "bust" your SEPP and trigger retroactive penalties.

1. 1Taking more than the calculated annual amount
2. 2Taking less than the calculated annual amount
3. 3Adding contributions to the SEPP IRA
4. 4Rolling money into the SEPP IRA
5. 5Transferring money out of the SEPP IRA
6. 6Stopping distributions before requirement is met

Limited circumstances allow modification without penalty.

• **Death**: SEPP can stop without penalty upon death
• **Permanent disability**: IRS-defined disability allows modification
• **One-time RMD switch**: Can switch to RMD method once (not a rule violation)
• **Account transfer**: Direct trustee-to-trustee transfer to new custodian OK
• **After completion**: Once you've satisfied requirements, no restrictions