Late IRA Rollover Contributions
Among the many different requirements for valid IRA rollover contributions is the requirement that individuals must complete the rollover within 60 days following receipt of the distribution from the original retirement plan. If this 60 day window is exceeded, the money may be considered a distribution from the plan - which makes it taxable, and most likely triggers the 10% early withdrawal penalty as well. The IRS is able to waive this requirement in some cases, but many of the financial institutions serving as custodians or trustees of the IRA have not accepted rollovers past the required 60 day window without receiving a waiver from the IRS.
New Guidance
The IRS has recently provided guidance which allows financial institutions to accept a customer’s self-certification for late rollovers, unless the institution has knowledge contradicting the certification.
This self-certification must be in the form of the “Model Letter” from IRS Revenue Procedure 2016-47 (or be substantially similar). Taxpayers should keep a copy of this certification in their files in the event of an audit.
Requirements
In addition to the requirement that the IRS has not previously denied a waiver for the rollover, one of the following must apply:
- The late rollover is the result of an error by either financial institution (the distributing or receiving institution)
- The distribution was made by check, with the check having been misplaced and not cashed
- The distribution was placed in an account mistakenly thought to be a retirement plan
- The taxpayer suffered severe damage to their principal residence
- The taxpayer suffered the death of a family member
- Either the taxpayer themself, or a family member, was suffering a serious illness
- The taxpayer was imprisoned
- A foreign nation imposed restrictions
- An error by the postal service
- The distribution in question was made because of an IRS section 6331 levy, but the money has since been returned
- The taxpayer made reasonable efforts to supply the information necessary for the rollover, but the distributing financial institution delayed in providing the required information to the plan receiving the funds
Although the IRS provides leeway with this new guidance, they do require that the funds be properly rolled over as soon as practical after one of the above reasons no longer prevents the contribution from taking place. The IRS generally defines “as soon as practical” to mean within 30 days