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Breathing Room for Rollovers

Up until just recently, if you wanted to roll over money from an IRA or 401(k) plan (before age 59½) to a different IRA or workplace retirement plan, you had to complete the withdrawal and new deposit within 60 days.1 If you didn’t, it would likely be classified as a nonqualified distribution and the money withdrawn would be subject to both income taxes and a 10 percent early withdrawal penalty. You could request a waiver for extenuating circumstances, but this would require a private letter ruling from the IRS.2

However, the IRS released in August a new self-certification procedure for taxpayers in this situation. It covers 11 different mitigating circumstances that waives the current 60-day rule. 3 Revenue Procedure 2016-47 even includes a sample Certification for Late Rollover Contribution that taxpayers can use to check off the approved reason(s) for the late deposit, sign and send to the IRS for an automatic waiver. The IRS states that even if the individual does not send in the self-certification letter, it now has the authority to grant the waiver at a later date.4

The following are the 11 circumstances under which an eligible taxpayer can qualify for tax-free rollover treatment past the requisite 60-day deadline:5

  1. Financial institution error
  2. Distribution check was misplaced and never cashed
  3. Distribution was deposited into an account that the taxpayer mistakenly thought was an eligible retirement plan
  4. The taxpayer’s principal residence was severely damaged
  5. A member of the taxpayer’s family died
  6. The taxpayer or a member of the taxpayer’s family was seriously ill
  7. The taxpayer was incarcerated
  8. A foreign country imposed restrictions
  9. Postal error
  10. Distribution was made as a levy to collect prior taxes owed but the proceeds of the levy were subsequently returned to the taxpayer
  11. The party making the distribution delayed providing the information required to complete the rollover despite the taxpayer’s reasonable efforts to obtain it

It is advisable to consult with your financial professional before making any substantial transfers to help ensure rollovers will not create new issues or impact your current financial strategy. Working with an advisor may also help you avoid missing the 60-day deadline and the need to self-certify.

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1IRS. Aug. 24, 2016. “New Procedure Helps People Making IRA and Retirement Plan Rollovers.” Accessed Aug. 31, 2016.
2Ibid
3Ibid
4Ibid
5IRS. Aug. 24, 2016. “Revenue Procedure 2016-47" Accessed Aug. 31, 2016.

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