substantially equal periodic payment (SEPP)

A method of avoiding penalties on early withdrawals from an IRA. Ordinarily, an individual who withdraws funds from an IRA before age 59.5 pays a 10% penalty on the withdrawal. However, an individual can avoid this penalty by taking substantially equal periodic payments calculated by using a formula developed by the IRS. Individuals who choose to take these payments must continue to do so for five years or until they reach age 59.5, whichever is longer.