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December 7, 2011

2011 Ends on December 30 for Retirement Accounts


You might have already realized that December 31 falls on a weekend.

This means that transactions with a December 31 deadline now have a December 30 deadline. Unlike other deadlines that occur during the year (where the deadline is extended to the next business day, if it falls on a non-business day), when December 31 falls on a weekend, the deadline is the previous business day.

This will mostly affect clients who have automatic distributions schedule to be paid on the last day of the month or the end of the quarter. 

Some custodians systems are programmed to pay month-end distributions the 1st of the following month, when the month-end falls on a non-business day. For these custodians, it means that distributions scheduled to be paid on December 31 will be paid on January 2, which could be disastrous for RMDs and SEPP/72(t) payments required to be taken during calendar year 2011. Of course, there are some who are aware of this issue and have taken steps to ensure that the automatically scheduled December 31 distributions are paid on the last business day of the year.

What to Do

If you have automatic distributions scheduled for the end of the month:

  • Contact your IRA custodian and have the date changed to a few days before the end of the month.
  • Contact your IRA custodian to determine if they have taken steps to ensure distributions will be paid by the last business day of the year.

What is the Risk?

  • If RMDs for the calendar year are not paid by the last business day of the year, the account owner will owe the IRS a 50% excess accumulation penalty for the RMD amount not withdrawn by the end of the year.
  • For SEPP/72(t) distributions due for the calendar year that are not paid by the last business day of the year, the SEPP could be consider modified, resulting in the IRA owner owing the IRS the 10% early distribution penalty on all distributions taken under the program.

Of course, the IRS is likely to waive any penalties that may apply in these cases. But, we would likely all agree that it is best to avoid the hassle, if possible.

Tip provided by Appleby Retirement Consulting Inc

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.


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