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Early retirement option for Americans with pre-tax accounts

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Just this AM, I came across an IRS supported method to use pre-tax retirement funds before age 59½ without incurring the usual 10% penalty.  It is rather cumbersome and restrictive but still useful in certain situations. If you screw it up, the consequences are nasty.

This post is not to be considered as advice or a recommendation.

Here is Gemini’s description:

SEPP (Substantially Equal Periodic Payment) is a rule (IRS Section 72(t)) allowing penalty-free withdrawals from retirement accounts like a SEP-IRA before age 59½ by taking a fixed series of payments for at least 5 years or until age 59½, whichever is longer, avoiding the typical 10% penalty but still paying regular income tax.

Here’s my simplified interpretation:

SEPP is like using your 401K/IRA/SEP funds to buy an irrevocable annuity from yourself.  You avoid paying any financial institution the profit they like to collect when they sell you an annuity.  It works best if the retirement accounts are 100% under your control.

From the horses mouth:

https://www.irs.gov/retirement-plans/substantially-equal-periodic-payments

An easier read than the IRS site:

https://www.investopedia.com/terms/s/sepp.asp

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