How can I use Substantial Equal Periodic Payments to escape the early distribution tax?
The Substantial Equal Period Payments provide an exception to the early distribution tax. Under the Substantial Equal Periodic Payments method, you do not have to pay the early distribution tax on money that you take out of your plan in regular payments over either your life expectancy or the joint life expectancy of you and your beneficiary even if you are younger than 59 and 1/2.
The following are some basic rules about the exception:
- There are no age restrictions.
- The payments must be substantially equal, which means you cannot alter the payments each year.
- You must compute the payments as though you intend to distribute the retirement plan over your entire life or over the joint life of you and your spouse.
- You may not discontinue payments or alter the computation method for at least 5 years and if you have not reached age 59 and 1/2 at the end of the 5 year period, you must wait until you reach that age before making a change.
Please contact one of our IRA Experts at 800-472-0646 for more information.