IRS Makes it Easier to Waive 60-Day IRA Rollover Requirement

New IRS guidelines make it easier to obtain a waiver for missing the 60-day requirement to rollover a distribution from an IRA or qualified retirement plan.

When money or property is taken from a traditional IRA, 401(k), or other qualified retirement plan, the amount of the distribution normally has to be included in gross income. No amount needs to be included in gross income, however, when the same amount is deposited in the same or another qualified retirement plan within 60 days after the distribution was taken.

The IRS can extend the 60-day deadline when the taxpayer had a reasonable excuse for failing to meet the deadline. Until recently, to obtain a waiver the taxpayer had to file a written request with the IRS. A fee had to accompany the request, and there was no timetable under which the IRS would rule on the request. There also was no guarantee the waiver would be granted.

The IRS created a new self-certification waiver process in August. Under this process, a taxpayer who inadvertently didn’t meet the 60-day deadline because of mitigating circumstances can file a letter with the retirement plan administrator or trustee claiming a waiver from the 60-day deadline. The IRS indicated that it and the plan officials ordinarily will accept this self-certification. The plan officials will report the rollover as meeting the 60-day deadline but also will report to the IRS that the self-certification was made. The IRS always can audit the taxpayer and review the rollover.

In Revenue Procedure 2016-47, the IRS provides 11 conditions that qualify as mitigating circumstances under which a taxpayer can self-certify the waiver. The circumstances include a distribution check that was misplaced and never cashed, the taxpayer’s home being severely damaged, a family member’s death, the taxpayer or a family member being seriously ill, the taxpayer being incarcerated, or restrictions imposed by a foreign country. The revenue procedure also provides a sample certification letter a taxpayer can send to the plan officials. The revenue procedure can be located on the IRS website at www.irs.gov.

Keep in mind that because of a court ruling in 2014, a taxpayer is allowed only one tax-free 60-day rollover within a 12-month period. That limit is per taxpayer, not per IRA or retirement plan. See our June 2014 issue for details.

It is best to have rollovers made by the plan administrators or trustees. An unlimited number of these rollovers can be made, and there is no 60-day deadline. You still have to monitor the transactions to be sure the plan officials don’t make a mistake, such as depositing your rollover in a taxable account. But it’s less risky than trying a 60-day rollover