You are probably familiar with the idea of an IRA rollover. Generally, taxpayers can distribute assets from an IRA account, without an immediate tax consequence, provided that the assets are contributed to another IRA account within 60 days. The distribution is subject to tax, as well as a potential 10% early withdrawal penalty, if a taxpayer misses the 60-day deadline. The IRS may waive the deadline if it “would be against equity or good conscience” to enforce it. See I.R.C. §§ 402(c)(3)(B) or 408(d)(3)(I). Until last week, Revenue Procedure 2003-16 governed the procedure for granting waivers. Under the 2003 revenue procedure, a taxpayer could obtain a hardship waiver with a letter ruling request or an automatic waiver if the failure to meet the 60-day deadline was “solely due to an error on the part of the financial institution.”
Last week the IRS issued Revenue Procedure 2016-47, which drastically changes the way taxpayers can address a failed rollover. Now, taxpayers that inadvertently miss the 60-day deadline can make a written self-certification to a plan administrator or an IRA trustee, custodian, or issuer and report the contribution as a valid rollover. There are three primary qualifications for the self-certification. First, the taxpayer cannot have been denied a waiver request. Second, the failure to make the contribution to a qualified plan must be the result of:
(a) an error by the financial institution receiving the contribution or making the distribution;
(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;
(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
rollover 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.
Finally, the taxpayer must make the required contribution into a qualifying account as soon as practicable after the hardship has passed.
Note that the self-certification is not a waiver and the IRS reserves the right to determine, on examination, whether the requirements for waiver were met. If the IRS determines that the requirements for waiver were not met, the taxpayer may be subject to additional taxes, penalties, and interest.
Notwithstanding any of the above, the preferred method to roll an IRA over from one account to another is directly between two institutions—then you need not worry about the 60 day limitation.