10 Key Rules for Mastering the SEPP/72(t) Exception to the 10% Early Distribution Penalty for IRAs and Employer Plans FLEXCAS

Overview

One of the challenges faced by advisors is to help their clients minimize income tax on their retirement savings. This includes avoiding the 10% additional tax (early distribution penalty) penalty when possible. Distributions taken by these individuals are subject to a 10% early distribution penalty unless they qualify for an exception. One of the exceptions is distributions taken under a substantially equal periodic Payment (SEPP) program, commonly referred to as a SEPP/72(t) payment because they are governed by Internal Revenue Code Section 72(t). The rules for 72(t) programs have been updated under IRS Notice 2022-6, which is effective for any 72(t) payments commencing on or after January 1, 2023 and may be used for 72(t) payments commencing in 2022. While a 72(t) program can help the owner of an IRA or employer-plan account avoid the 10% early distribution penalty, only `suitable’ individuals should enter such an arrangement.

Highlights

Notice 2022-6. SEPP Penalty Exception. The Age 59 1/2 Factor

Prerequisites

None.

Designed For

CPAs and other tax professionals.

Objectives

When the 10% early distribution penalty applies to distributions. How to identify suitable candidates for the 72(t)-payment program. The compliance requirements for a 72(t)-payment program.

Preparation

None.

Notice

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