Payments are treated as “substantially equal periodic payments” within the meaning of § 72(t)(A)(iv) if the amount to be distributed is determined by amortizing the taxpayer’s account balance over a number of years equal to the life expectancy of the account owner or the joint life expectancy and last survivor expectancy of the plan owner and beneficiary at an interest rate that does not exceed a reasonable interest rate on the date payments begin. Life expectancies are determined in accordance with the rules of Rev. Rul. 2002-62 for 2003 and later.
The Amortization Method uses the standard financial formula for amortizing a balance over a given period. This formula incorporates both the frequency of distributions and when (in each period) the distribution is made. Note that the IRS FAQ allows for the amortization calculation to be calculated as if the payments were made at the end of each period. In annual payment cases, this can result in a significant increase in the payment amount.