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The law allows SEPP also called 72(t) distributions (and in IRS publications annuity distributions) to begin without penalty prior to age 59-1/2. The allowed payments are intended to last for your life expectancy. Therefore, if you are young, they will be small--perhaps as little as 2% of the account balance per year.

The payments may be calculated three different ways--which gives some flexibility in size of payments--but still intended to last your full life expectancy. Your plan custodian will usually be willing to calculate the estimated distributions in your case.

The main requirement of SEPP distributions is that once begun they must continue for the longer of 5 years or until you reach age 59-1/2. If for any reason you fail to make a distribution in a given year, you will be assessed penalties on all previous distributions under the plan. The great concern is that the underlying account may not earn sufficient assets to allow distributions for all the years required. Therefore, SEPP distributions are best suited to those close to retirement or must necessicarily be conservative.

The IRS Publication on IRAs (Is it Publication 590?) has a section on SEPP distributions and gives an overview of the rules. That is a good place to begin for more information. You will also find books on IRAs in your local library or book store. Most of them have chapters on SEPP distributions.
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