IRS Provides Relief for Late Retirement Plan Rollovers
October 31, 2016

On August 24, 2016, the IRS released Revenue Procedure 2016-47 which provides a self-certification procedure for individuals who inadvertently miss the 60-day rollover time limit.

The 60-day rollover rule applies when an individual directly receives a distribution from an IRA or workplace retirement plan which is intended to be contributed or “rolled over” to another IRA or workplace retirement plan (this type of rollover is only allowed once per year). The individual must contribute the funds to the new qualified retirement plan within 60 days.  A failure to do so will result in the distribution being taxable and possibly subject to the 10% early withdrawal penalty.

Before the release of Revenue Procedure 2016-47, individuals who missed the 60-day rollover period for legitimate reasons could only apply for a waiver by submitting a private letter ruling to the IRS and paying the required fee - $10,000 as of February 2016.   For most individuals, this was not a viable option.

Under the new Revenue Procedure, eligible individuals will now ordinarily qualify for a waiver if one or more of 11 circumstances apply.  These circumstances include:

  1. An error was committed by the financial institution receiving the contribution or making the distribution;
  2. The distribution check was misplaced and never cashed;
  3. The distribution was deposited into and remained in an account that the individual mistakenly thought was an eligible retirement plan;
  4. The individual’s principle residence was severely damaged;
  5. A member of the individual’s family died;
  6. The individual or a member of the individual’s family was seriously ill;
  7. The individual was incarcerated;
  8. Restrictions were imposed by a foreign country;
  9. A postal error occurred;
  10. The distribution was made pursuant to a levy under IRC §6331 and the proceeds of the levy were returned to the individual;
  11. 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 individual’s reasonable efforts to obtain the information.

The IRS and plan administrators/trustees will ordinarily honor an individual’s self-certification that they qualify for a waiver under these circumstances. The IRS has provided a sample self-certification letter in the new Revenue Ruling that can be used to notify the retirement plan administrator or trustee that they qualify for the waiver.

When the circumstance that prevented the proper rollover no longer exists, the individual must properly deposit the funds into a qualifying retirement account “as soon as practicable.”  A 30-day safe harbor provision will automatically satisfy the “as soon as practicable” requirement.

The IRS also intends to modify Form 5498 instructions to require an IRA trustee to report a rollover contribution that was accepted after the 60-day deadline.

To avoid the 60-day issue altogether, individuals should utilize a “direct” or “trustee-to-trustee” rollover. This type of rollover is not subject to the 60-day or once-a-year rules.  With this type of rollover, the retirement plan funds are transferred directly from one financial institution to another and the individual does not receive a check.