## What is a SEPP (72(t))
A **SEPP** (Substantially Equal Periodic Payment) under IRS rule **72(t)** lets you withdraw from a **fenced tax-deferred account** (such as a traditional IRA) before age **59½** without the usual **10% early-withdrawal penalty**, if you commit to a fixed schedule for the longer of **five years** or until you reach 59½. Payments are **ordinary income** for tax. Analyzer models SEPP on a planning **scenario**; it does not replace tax or legal advice.
## Three IRS computation methods
Analyzer compares three IRS-sanctioned methods for the same fenced account: **RMD** (payment recalculated each year from the remaining balance), **fixed amortization**, and **fixed annuitization** (level annual payments). Amortization and annuitization use an interest rate capped at **120% of the federal mid-term rate**. Compare shows annual payment, lifetime tax, and ending wealth for each method before you apply one to the scenario.
## One-time switch to the RMD method
If you applied a **fixed amortization or annuitization** SEPP, you can make the IRS-sanctioned **one-time switch to the RMD method** from a chosen year using the **Switch to RMD method** dropdown. Payments stay level until that year, then recompute each year from the remaining balance (usually **lower** payments). This is the standard safety valve when a level payment is drawing the account down too fast — the switch is allowed and does **not** bust the plan. It applies only to amortization/annuitization (the RMD method is already balance-based).
## Where to model SEPP
On **Living Standard** (Wealth Explorer), open the **SEPP** panel under your active scenario. Choose the account owner, account type, start year, and optional interest rate, then **Compare methods**. **Apply** writes the chosen SEPP to the scenario fork; the multi-year **path** table shows SEPP withdrawals, and **Monte Carlo** picks up the same cash flows. Remove an applied SEPP from the same panel.
## Why SEPP increases Monte Carlo success
**Why does a SEPP raise Monte Carlo success probability?** Success counts paths with **no liquidity shortfall** every year and **non-negative terminal net worth**—not the highest ending balance. SEPP adds **scheduled, penalty-free** tax-deferred withdrawals before 59½; gross proceeds land in **cash** before the spending waterfall. In bad return sequences, that funds living expenses and taxes when taxable and cash would run dry, so more paths **succeed** even if ending wealth is lower.
## SEPP success versus ending wealth
**Higher success probability does not always mean higher wealth at longevity.** SEPP pays income tax on each distribution and draws down the fenced account earlier, which can lower **ending wealth** while still raising success. Success measures whether the plan **survives** every year; ending wealth measures how much is left at the end. Compare both metrics when evaluating a SEPP—not success alone.
## SEPP modeling limits in simulations
Monte Carlo uses the same multi-year cash-flow engine as the path table, but **withdrawal tax rates are simplified** versus the full schedule view. Analyzer does not model every real-world SEPP compliance risk (for example, **plan busting** if payments change). SEPP applies only to the **fenced account** you select; it is **mutually exclusive** with a Roth ladder on the same funds. Results are illustrative, not a guarantee.
Educational content only—not personalized investment, tax, or legal advice.