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Substantially Equal Periodic Payments (SEPP) from your 72(t) cannot be modified for (5) years or until Age 59 ½, whichever is longer.
Generally speaking, once 72(t) payments start they cannot be stopped or modified for any reason*. If payments are modified in any way other than due to death or disability of the IRA owner or running out of money due to poor investment performance, a 10% Federal Income Tax penalty PLUS interest will be retroactively applied to the payments beginning with the first year of the distributions/payments. This means that if you are in Year #4 of taking 72(t) payments and you violate the rules, you will have to pay this 10% tax penalty (and interest) on the entire amount you have withdrawn over the first (3) years and not just on the amount you violated in Year #4 of your 72(t) commitment.
We have effectively set up 72(t) distributions for penalty free income for hundreds of clients and this strategy is very effective, IF DONE CORRECTLY AND PROPERLY STRUCTURED!
Make sure you work with a Firm who is experienced and knowledgeable in this specialized area. Knowledge is Power.
* There is a one time exception the IRS allows if you would like to change from the Amortization or Annuitization method to the RMD method. There are strict rules for this, please see Internal Revenue Bulletin No 2002-42 published by the IRS for more details.
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