SEP IRA distributions follow the same distribution rules as Traditional IRAs.
A SEP IRA distribution is taxed as ordinary income for the tax year of the distribution.
A 10% penalty is assessed if distributed before age 59.5 unless an exception is met. See IRS Publication 590-B for additional information on exceptions.
Exceptions to the 10% early withdrawal penalty for distributions before age 59.5 can include:
You have unreimbursed medical expenses that are more than 10% (or 7.5% if you or your spouse were born before Jan. 2, 1952) of your adjusted gross income
The distributions are not more than the cost of your medical insurance due to a period of unemployment
You are totally and permanently disabled
You are the beneficiary of a deceased IRA owner
You are receiving distributions in the form of an annuity
The distributions are not more than your qualified higher education expenses
You use the distributions to buy, build, or rebuild a first home (up to $10,000)
The distribution is due to an IRS levy of the qualified plan
The distribution is a qualified reservist distribution
IRA distributions are optional between ages 59.5 and 70.5
At age 70.5, SEP IRA Minimum Distributions begin.
The account holder must begin taking an annual distribution by April 1st of the year following the year in which she or he reaches 70.5 years of age.
The required minimum distribution is calculated by dividing the fair market value of the IRA as of Dec. 31 of the prior year by the life expectancy of the IRA account holder as found on the IRS's Uniform Life Tables.