Nick,

A 12/31 retirement date always means that the employee needs to be sure that the separation date on the company’s records agrees and is NOT recorded as a January date. Typically, the last day worked is the separation date, but it should be confirmed that the company is not treating it differently for some reason. This makes all the difference with respect to RMDs.

If the 12/31 date is official, 2011 became an RMD distribution year even though he worked all year, because he also separated in 2011 a few hours before midnight. The 2011 RMD would be based on the plan 12/31/2010 balance and must be taken out by 4/1/2012. Then the 2012 RMD based on the 12/31/2011 balance must be taken by 12/31/2012. That’s two taxable RMDs in 2012.

And with a 403b, if the employee had a 12/31/1986 balance, that balance is NOT subject to RMDs until age 75. This is another thing to confirm with the plan administrator. If it applies, the 12/31/1986 balance would be subtracted from the balances on the above dates to determine the RMDs before 75.

If the employee rolls anything over to an IRA after the RMDs have been distributed, the amount rolled over is deemed to come first from the pre 1987 balance. This prevents the employee from being able to roll over just the post 1986 balance and let the old money sit untouched until age 75.

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