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There are all sorts of problems that can crop up when attempting to complete a 60-day rollover of qualified funds to an IRA. If you don’t complete the rollover within 60 days, the rollover is not allowed, and your distribution from the original source is subject to tax (and perhaps a penalty). Sometimes you can be granted automatic waivers of the 60-day rule, but only if all of the following apply:
- The financial institution receives the funds on your behalf before the end of the 60-day rollover period, but for some reason the institution didn’t get the funds deposited into your eligible retirement plan;
- You followed all the procedures set by the financial institution for depositing the funds into an eligible retirement plan within the 60-day period (including giving instructions to deposit the funds into an eligible retirement plan);
- The funds are not deposited into an eligible retirement plan within the 60-day rollover period solely because of an error or delay on the part of the financial institution;
- The funds are eventually deposited into an eligible retirement plan within 1 year from the beginning of the 60-day rollover period; AND
- It would have been a valid rollover if the financial institution had deposited the funds as instructed within the time allotted.
Self certification waivers
There is another option available if the automatic waiver does not apply – called self certification. In order to self certify, you need to fill out a letter using the model at Revenue Procedure 2016-47, or a substantially similar letter. This letter is then presented to the custodian who is to receive your late rollover contribution.
You will be entitled to a waiver if ALL of the following are true:
- The rollover contribution satisfies all of the other requirements for a valid rollover (except the 60-day requirement).
- You can show that one or more of the reasons listed in the Model Letter prevented you from completing a rollover before the expiration of the 60-day period.
- The distribution came from an IRA you established or from a retirement plan you participated in.
- The IRS has not previously denied your request for a waiver.
- The rollover contribution is made to the plan or IRA as soon as practicable (usually within 30 days) after the reason or reasons for the delay no longer prevent you from making the contribution.
- The representations you make in the Model Letter are true.
Please note, a self-certification is not a waiver by the IRS of the 60-day rollover requirement. However, if you qualify for a waiver, you can use the Model Letter to make a late rollover contribution to another plan or IRA. If the IRS subsequently audits your income tax return, it may determine that you do not qualify for a waiver, in which case you may owe additional taxes and penalties. Also, If you have requested a PLR (below) and were not granted a waiver, you cannot self certify on this rollover.
Private Letter Ruling (PLR)
If the above conditions do not apply, you can still request a ruling from the IRS, called a Private Letter Ruling (PLR). You would take this route if you still think your circumstances merit the inclusion of your rollover even though it was beyond the 60-day period. There is a $10,000 fee for requesting the PLR.
When making a determination on your request, the IRS will consider all of the following details:
- Whether errors were made by the financial institution (other than those described under “Automatic waiver”, earlier),
- Whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error,
- Whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check), and
- How much time has passed since the date of distribution.
If you are planning to request a PLR, keep in mind that the costs can be quite high. In addition to the earlier-listed $10,000 user fee, the cost for a tax attorney to prepare the request can be anywhere from $5,000 to $10,000 and more, depending upon the complexity.
Once again, the problems you find with the 60-day rollover highlight the benefit of doing the relatively painless trustee-to-trustee transfer.