Calculate a 72(t) substantially equal periodic payment or the IRA balance needed with RMD, fixed amortization, or fixed annuitization methods today.
72(t) SEPP Formula
Substantially equal periodic payments may be calculated under the RMD, fixed amortization, or fixed annuitization method.
RMD method:
Payment_{RMD}=Balance/LifeExpectancyFactor
Fixed amortization:
Payment_{amort}=Balance*r/[1-(1+r)^{-N}]
Fixed annuitization:
Payment_{annuit}=Balance/AnnuityFactor
Variables:
- r is the permitted annual interest rate
- N is the applicable life-expectancy factor
- the annuity factor uses the permitted mortality and rate assumptions
- the balance is the account value used for the plan
Payment mode calculates an annual amount from a balance. Balance-needed mode reverses the selected method.
The RMD method is recalculated under its rules, while fixed methods generally establish a fixed amount.
A plan commonly must continue until the later of five years or age 59 1/2; the displayed age is a simple timing check.
Illustrative Method Differences
The same account can produce different payments under different permitted methods.
| Method on $500,000 | Factor or rate | Illustrative annual payment |
|---|---|---|
| RMD | 34.2 factor | $14,620 |
| Fixed amortization | 34.2 years and 3% | About $22,465 |
| Fixed amortization | 34.2 years and 5% | About $30,443 |
| Fixed annuitization | 18.5 factor | $27,027 |
Example Problems
Example 1: Calculate a payment.
Use a $500,000 balance, a 34.2 factor, and a 5 percent fixed-amortization rate.
Example 2: Solve for a balance.
Enter a $30,000 target payment and reverse the selected method to estimate the account needed.
Frequently Asked Questions
Which factor should I use?
Use the permitted IRS table and factor for the taxpayer and start date, not the example default.
Can I use any interest rate?
No. Fixed methods are subject to a maximum permitted rate under federal guidance.
Can payments be changed later?
An impermissible change may trigger retroactive additional tax, although limited permitted changes can exist.
