Rolling Over Retirement Plan Funds Late No Longer So Taxing

By:
Chris Gaetano
Published Date:
Aug 25, 2016
Roll Over

The IRS has released new rules that are more forgiving to taxpayers who roll over their retirement funds after the 60 day limit. The new guidance allows them to offer a self-certification that can be used to report that a retirement plan contribution is a valid rollover, which can then be used by plan administrators and trustees in determining whether taxpayers have satisfied the conditions for a waiver of the 60-day rule. 

Previously, any amount distributed from a qualified plan or IRA will be excluded from income if it is transferred to an eligible retirement plan no later than 60 days, similar to annuity plans, tax sheltered annuities and certain government plans. If it's longer than 60 days, however, it counts as income. The IRS is allowed to waive that requirement, but only in cases where the failure to do so "would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement."

Now, under the new rules, taxpayers may make a written certification to their plan administrator or IRA trustee that a contribution fulfills the criteria for exemption. These criteria include:

1) No prior denial by the IRS. The IRS must not have previously denied a waiver
request with respect to a rollover of all or part of the distribution to which the contribution relates.

(2) Reason for missing 60-day deadline. The taxpayer must have missed the 60-day deadline because of the taxpayer’s inability to complete a rollover due to one or more
of the following reasons:
(a) an error was committed by the financial institution receiving the contribution or
making the distribution to which the contribution relates;
(b) the distribution, having been made in the form of a check, was misplaced and
never cashed;
(c) the distribution was deposited into and remained in an account that the
taxpayer mistakenly thought was an eligible retirement plan;
(d) the taxpayer’s principal residence was severely damaged;
(e) a member of the taxpayer’s family died;
 

(f) the taxpayer or a member of the taxpayer’s family was seriously ill;
(g) the taxpayer was incarcerated;
(h) restrictions were imposed by a foreign country;
(i) a postal error occurred;
(j) the distribution was made on account of a levy under §6331 and the proceeds
of the levy have been returned to the taxpayer; or

(k) the party making the distribution to which the roll
over relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information.

(3) Contribution as soon as practicable; 30-day safe harbor. The contribution must be made to the plan or IRA as soon as practicable after the reason or reasons listed in
the preceding paragraph no longer prevent the taxpayer from making the contribution.
This requirement is deemed to be satisfied if the contribution is made within 30 days after the reason or reasons no longer prevent the taxpayer from making the contribution.  

The IRS stressed that the self-certification, itself, does not count as a waiver, though it can be used to report the rollover as valid unless otherwise informed by the IRS. The IRS may, in the course of an examination, consider whether the contribution meets the requirements of a waiver. 

"For example, the IRS may determine that the requirements for a waiver were not met because of a material misstatement in the self-certification, the reasons or reason claimed by the taxpayer for missing the 60-day deadline did not prevent the taxpayer from completing the rollover within 60 days following receipt, or the taxpayer failed to make the contribution as soon as practicable after the reason or reasons no longer prevented the taxpayer from making the contribution," said the IRS. 

The new rules are effective as of today. 

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