Why Two SEPPs With the Same Balance and Age Can Pay Different Amounts

A 50-year-old with a $500,000 IRA who starts a 72(t)/SEPP in September 2026 can draw roughly $1,571 more a year, under the exact same method, than the same person with the same balance starting in January 2026. Nothing about the account changed. The only difference is a single interest-rate assumption the IRS lets you choose from the month you start — and that one number moves the payment by about five percent.

The rule that creates the gap

The fixed amortization and fixed annuitization methods — two of the three IRS-approved ways to compute a Series of Substantially Equal Periodic Payments — both divide the account balance by a present-value factor built from an assumed interest rate. IRS Notice 2022-6, Section 3.02(c), sets the ceiling on that rate:

"The interest rate that may be used to apply the fixed amortization method or the fixed annuitization method is any interest rate that is not more than the greater of (i) 5% or (ii) 120% of the federal mid-term rate (determined in accordance with section 1274(d) for either of the two months immediately preceding the month in which the distribution begins)."

Two things follow directly from that sentence. First, the rate isn't fixed by regulation — it moves every month with the published federal mid-term AFR, floored at 5%. Second, you get to pick: whichever of the two months right before your first distribution gives the number you want. The AFR rate table tracks that monthly figure, unrounded, straight from each month's Revenue Ruling, specifically so you can look up both eligible months before choosing.

Why a higher rate means a bigger payment

Both fixed methods divide the balance by a factor that shrinks as the assumed rate rises — a higher discount rate makes each future dollar of the payment schedule "worth less" today, so it takes a smaller factor, and therefore a bigger yearly payment, to exhaust the same account over the same span. Assume a higher rate and the math hands you more money per year from an identical balance.

The AFR rate table's own data shows exactly how much that assumption moved in 2026. For every month from January through June, 120% of the mid-term AFR sat below 5%, so the 5% floor governed regardless of which of the two eligible months you referenced. Starting with July, 120% of the mid-term AFR climbed past 5% and became the binding number instead, rising again by September.

A worked example: January vs. September 2026

Run the same inputs — a $500,000 traditional IRA balance, a 50-year-old account owner — through all three IRS-approved methods, once using January 2026's cap and once using September 2026's, and only two of the three numbers move:

| Method | January 2026 cap (5.00%) | September 2026 cap (5.40%) | Difference | | --- | --- | --- | --- | | Fixed amortization | $30,156.12 | $31,727.17 | +$1,571.05 (+5.21%) | | Fixed annuitization | $31,522.92 | $33,168.37 | +$1,645.45 (+5.22%) | | RMD method | $13,812.15 | $13,812.15 | $0 |

The 72(t)/SEPP calculator produces these same figures — plug in $500,000, age 50, and either month's rate from the AFR table to reproduce them yourself. Run the same comparison at a different starting age and the direction holds: at age 45 with the same balance, the fixed amortization payment moves from $28,911.15 in January to $30,534.48 in September, a $1,623.33 (5.6%) gap from the rate assumption alone.

Why the RMD method doesn't move

The RMD method divides the balance by the account owner's Single Life Expectancy factor for that age — nothing else. It has no interest-rate input at all, so it produces the identical payment whichever month's AFR you'd otherwise have looked up. It's also the only one of the three methods built to be recalculated every year as the balance and life-expectancy factor change; fixed amortization and fixed annuitization compute one payment from the rate you select at the very first calculation, and that payment — and the rate assumption behind it — doesn't get revisited later even as the published AFR keeps moving in subsequent months.

What this doesn't mean

The interest rate in this formula is a ceiling on a mandated withdrawal calculation, not a forecast, a target, or your account's expected return. Choosing September's higher cap over January's doesn't mean your IRA will earn 5.40% — it means the IRS lets you assume up to that rate when converting a starting balance into a fixed yearly payment. Notice 2022-6 sets a ceiling, not a floor: you may use any rate at or below the greater of 5% or 120% of your chosen month's mid-term AFR, including a lower one, which is sometimes chosen deliberately to build in a cushion against a series that's about to run for a decade or more.

This guide is informational only and is not financial, tax, or legal advice. Figures above are illustrative calculator outputs for hypothetical inputs, not a projection for any specific account. Verify the current month's AFR directly against the IRS before relying on it to establish a real SEPP series.

Frequently asked questions

Does a higher assumed interest rate always increase a SEPP payment?

For the fixed amortization and fixed annuitization methods, yes — a higher rate assumption produces a smaller present-value or annuity factor, and dividing the same balance by a smaller factor always produces a larger payment. It has no effect on the RMD method, which doesn't use an interest rate at all.

Can I really choose between two different months' rates?

Yes. IRS Notice 2022-6 lets you use the published rate for either of the two calendar months immediately before the month your first distribution is taken. If your first payment falls in September, you can use August's or July's figure — whichever you prefer — not only the most recent one.

If I lock in a low rate at the start, does it update later when the published AFR rises?

No. The fixed amortization and fixed annuitization methods compute a single payment from the rate you selected when the series began, and that amount stays fixed for the life of the SEPP. A published rate change after your series starts doesn't reach back and change a payment you're already receiving.

Is the rate in this rule the same as the IRA's actual investment return?

No. It's a ceiling on the interest-rate assumption used to convert a balance into a mandated payment schedule, defined entirely by IRS Notice 2022-6 and the monthly federal mid-term AFR. It has no connection to how the account is actually invested or what it actually earns.

This guide is for informational and educational purposes only. It is not financial, tax, or legal advice. Tax rules are complex, fact-specific, and subject to change. Consult a qualified tax or financial professional before making IRA contribution or conversion decisions.

Last reviewed: September 2026 · Against primary sources cited in the body.