Which distribution type allows an employee to receive payments based on life expectancy?

The correct choice is the distribution type that allows an employee to receive payments based on life expectancy: Substantially Equal Periodic Payments (SEPP). This method provides a way for individuals to withdraw funds from their retirement accounts, such as an IRA or a 401(k), without incurring the usual early withdrawal penalty.

SEPP calculations take into account the account holder's life expectancy and allow for a series of withdrawals over time. The IRS has specific tables that provide life expectancy factors that employees must use to determine the amount they can withdraw annually. This approach is particularly beneficial for individuals who need to access funds before reaching the age of 59½ and wish to avoid penalties while still following IRS guidelines.

In comparison, 401(k) distributions do not specifically tie withdrawals to life expectancy and often do not allow penalty-free early withdrawals without meeting certain criteria. Roth IRA distributions have different rules where contributions can be taken out tax-free, but the growth is subject to different conditions. Early distributions typically refer to withdrawals taken before a certain age without utilizing the SEPP rule, which usually incurs penalties.

Thus, SEPP clearly stands out as the correct answer as it specifically addresses the condition of payments being based on life expectancy, allowing structured withdrawals in a manner