Substantially equal periodic payments (SEPP) are one of the exceptions in the United States IRS Code §72(t)(1) that allows receiving payments without the 10% early distribution penalty from a retirement plan or deferred annuity before the usual 59 1⁄2 age restriction under certain circumstances. The rules for SEPPs are set out in IRS code section 72(t) (for retirement plans) and 72(q) (for annuities), and allow for three methods of calculating the allowed withdrawal amount.
The interest rate that can be used in the latter two calculations has been fixed at one not more than 120% of the Applicable Federal Mid Term rate (AFR) for either of the two months prior to the calculation. SEPP payments must continue for the longer of five years or until the account owner reaches 59 1⁄2. The payments cannot be changed beyond a one-time allowed change from one of the latter two calculation methods to the first or all of the payments received will be retroactively taxable and penalized.
If the retirement account owner withdraws more or less than the amount calculated under the SEPP formula, the 10% early distribution penalty that was waived would apply in all instances (where it was waived under the SEPP program), and interest on those amounts will also apply.