Abaque 09 · The doors

Early access

Retirement money is locked until 59½, and then the statute cuts fourteen doors through that wall. Each has its own key. What almost nobody is told is that the doors are not the same on both sides: a workplace plan and an IRA have different exceptions, and a rollover — the most routine administrative act in retirement — silently opens some and bricks up others. This sheet draws the doors, prices the one you have to sign a contract to use, and shows what it costs to break that contract.

Doors open to you—
SEPP locks until—
Excess lock—
Worst-case recapture—
Register—
Sheet09 · Rev A
Inputs

Enter the chart here

Your age56
—
Balance committed to the SEPP$500,000
—
120% of federal mid-term rate4.60%
—
Life expectancy factor29.0
—
Where the money sits
—
Separated from that employer
—
Fig. 1

The doors, and what a rollover does to them

Door open Door closed for this account type Asymmetric — a rollover changes it Open in principle, not to you today
Nine of the fourteen doors are open on both sides, and those are the ones people know about. The five that disagree are where the money is lost. Roll a 401(k) into an IRA and you gain the first-home, higher-education and unemployed-health-insurance doors — and you permanently destroy the separation-from-service door, which for a 55-year-old is very often the only one that mattered. Nothing in a rollover form mentions this. The transaction is irreversible in the direction that counts: you cannot roll back into a former employer's plan to get the door back.
Fig. 2

The SEPP lock — what you sign up to, by the age you start

Age the SEPP releases you Age 59½ — free anyway Excess lock — commitment you did not need
Payments must run for the longer of five years or until 59½. Start young and 59½ binds; the five years are free. But the two rules cross at about 54½, and past that point the five-year clock binds instead — so every month you delay adds a month of commitment beyond the day you would have been free regardless. Starting at 59 buys you six months of early access at the price of a five-year contract that runs to 64. The curve has a flat bottom and then climbs: the worst age to start a SEPP is the age just before you no longer need one.
Locked for——
Of which unnecessary——
Amortization pays——
RMD method pays——
Fig. 3

Breaking the contract — recapture grows to the very last day

Recapture tax at 10% of everything taken Interest running from each year's due date
Modify the series before the release date — take one dollar too many, take one too few, roll the account, or simply miscalculate — and the 10% you avoided in every prior year comes back at once, with interest from each original due date. The exposure therefore rises monotonically to the final year. There is no point at which you are mostly safe: you are most exposed the day before you are released. The only sanctioned change is a one-way, one-time switch to the RMD method, which typically cuts the payment roughly in half — an escape valve that works by taking away the income you started the SEPP to get.
Calculation

Every step, at your numbers

Table 1

The lock, year by year

Start ageReleased atYears lockedExcess lock Binding ruleAmortization paysWorst-case recapture
Balance, rate and life expectancy are held constant down the table; only the starting age moves. The binding-rule column is the whole of §72(t)(4) in one word.
Method, the trapdoors, and what is not modelled

The lock

release age = max(start age + 5, 59.5) years locked = release age − start age excess lock = max(0, start age + 5 − 59.5) ← zero below 54½, then linear

The payment

rate = max(5%, 120% × federal mid-term rate) amortization = balance × r / (1 − (1 + r)^−n) n = life expectancy factor RMD method = balance ÷ life expectancy factor recomputed every year

The amortization payment is fixed for the life of the series; the RMD payment floats with the balance, which is precisely why it is the safe-harbour destination for a one-way switch. Both are exact given n. This sheet will not guess n for you — the life expectancy factor is a slider, not a lookup, because the divisor must come from the correct IRS table for the method and beneficiary structure you actually use, and a single wrong divisor invalidates the whole series retroactively. Read it out of Publication 590-B and type it in.

Trapdoor one: the rollover kills the Rule of 55

The separation-from-service exception is a property of the plan you separated from. Move the money to an IRA and the exception does not move with it — the IRA has no such provision, and there is no route back into a former employer's plan. A 56-year-old who consolidates accounts for tidiness can convert a penalty-free bridge into a 10% toll on every dollar until 59½.

Trapdoor two: the SEPP is a contract with no exit

Modification means any deviation: a different amount, an extra distribution, a rollover of the account, a transfer, in some readings even a partial one. The consequence is retroactive and it compounds — the exposure is largest at the end. Death and disability are the only clean releases besides completing the term.

Trapdoor three: the conversion ladder's clock starts before you need it

Each Roth conversion is accessible without penalty after five tax years, counted from 1 January of the year of conversion, and each conversion carries its own clock. A ladder therefore has to be started five years before the first rung is needed. Someone who decides at 56 to retire at 57 cannot build one in time; someone who started at 50 can. It is the only door on this sheet that must be opened years in advance, and the only one that rewards nothing but foresight.

What the register shows about this group

Read the drift column down the early-access entries. Fifteen of the sixteen are frozen. The $10,000 first-home exception was set in 1998 and has never been indexed; the $1,000 emergency withdrawal was written in 2022 with indexation explicitly withheld. Only the domestic-abuse cap indexes. Meanwhile the penalty itself is 10% — a percentage, which cannot erode. The escape hatches shrink in real terms every year while the thing they let you escape does not. That asymmetry is not an accident of drafting; it is what happens when relief is written in dollars and punishment is written in percent.

What is not modelled

  • Income tax. Every distribution here is still ordinary income. The 10% is on top. Sheets 03 and 05 price the income tax; this sheet prices only the penalty.
  • The fixed annuitization method, which needs the mortality table from §1.401(a)(9)-9. It is named because it exists, and not computed, because guessing an annuity factor would be worse than omitting it.
  • The interest rate on recapture. The federal underpayment rate is reset quarterly; Fig. 3 runs it at a flat assumed rate, stated on the chart. Treat that band as an order of magnitude, not a quote.
  • Terminal illness, qualified reservist, IRS levy and public-safety variations, each of which has conditions that cannot be reduced to an age or a dollar cap.
  • Plan permission. The Code permits these distributions; it does not compel a plan to offer them. A 401(k) may simply refuse to pay before separation, whatever §72(t) allows.
  • Roth ordering rules and the separate earnings clock, which govern how much of a Roth withdrawal is even reachable before the conversion question arises.

Confidence

All sixteen early-access entries are Verified against the Code and the IRS exceptions table, with the SEPP mechanics from Notice 2022-6. The door matrix reproduces the IRS's own account-type columns. No figure on this sheet rests on an unverified datum, and the two quantities the sheet deliberately refuses to supply — the life expectancy factor and the underpayment rate — are inputs precisely because they could not be verified here.

This is arithmetic, not advice. A SEPP is a multi-year commitment with a retroactive penalty for getting it wrong, and the calculation must be documented before the first distribution. Dollar figures are approximate and re-indexed — though note that on this sheet almost nothing is indexed at all. Before starting a series, breaking one, or rolling any account that a Rule of 55 claim depends on, take it to a CPA. The order of these moves is not reversible.
Indexed figures are re-set every January and this snapshot will go stale. Get notified when they are re-verified → · All twelve sheets