IRS Eases Rules for Making “Late” 60-Day Rollover Contributions

 

On August 24, 2016 the IRS released Rev. Proc. 2016-47 providing a new “self-correction” program for taxpayers who miss the 60-day window for rolling over a distribution from an IRA or qualified retirement plan. Prior to this guidance, a taxpayer who was unable to complete a rollover within the required time frame could only qualify for a tax-free rollover after the 60-day period by seeking IRS approval.

This new guidance allows plan administrators, IRA custodians and IRA trustees to accept “late” rollover contributions from individuals who certify that they meet the requirements to qualify for a waiver of the 60-day rollover window.

Under what circumstances can the self-correction program be used?

In order for this new program to be used, the taxpayer must provide written certification to the plan administrator or IRA custodian that they qualify for a waiver based on one or more of the following conditions:

  • An error was made by the financial institution making the distribution or receiving the contribution
  • The distribution check was misplaced and never cashed
  • The distribution was deposited into an incorrect account
  • The individual’s principle residence was severely damaged
  • One of the individual’s family members died or was seriously ill
  • The individual was incarcerated
  • Restrictions were imposed by a foreign country
  • A postal error occurred
  • The distribution was made as a result of an IRS levy and the proceeds have been returned
  • The party making the distribution delayed providing required information to the plan administrator or IRA custodian

 

The self-correction program is not available, however, if the IRS has previously denied the taxpayer’s request with respect to the rollover of a specific distribution (in whole or part).

What is the process for self-correction?

As discussed above, the individual must complete a written certification letter which must be provided to the plan administrator or IRA custodian. The IRS has provided a sample letter that may be used for this purpose.

Can the plan administrator or IRA custodian rely on the certification?

Yes; the plan administrator or IRA custodian can rely on the individual’s certification in accepting and reporting the rollover contribution (as a tax-free rollover), unless they have actual knowledge that representations made in the certification are false.

Is there a deadline for making the rollover contribution after the 60-day window?

In general, the rollover contribution must be made to the plan or IRA as soon as possible after the reason for the delay (must be one or more of the reasons listed above) no longer prevents the individual from making the contribution. This requirement is deemed to be satisfied if the contribution is made within 30 days after resolution of the underlying issue(s).

Is the certification the same thing as an IRS waiver?

No. The certification does not constitute an actual waiver by the IRS of the 60-day rollover requirement, but the taxpayer can report the contribution as a valid rollover on their tax return.  If, under examination, the IRS later determines the rollover does not meet the necessary conditions, the taxpayer may be subject to additional income taxes and penalties.

How can I learn more?

If you would like to learn more about these new rules, please contact us and we will be happy to assist you.

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