Limited Relief for Rollover Failures (article)
Generally, an individual wishing to preserve the tax-favored status of a distribution from a qualified retirement plan such as a 401k plan or 403b plan, or certain individual retirement accounts (IRA), will engage in a direct trustee-to-trustee transfer of the account balance. In certain instances, however, a distribution of the account balance is made. The account holder is then obligated to re-invest the assets in another qualified plan or IRA within 60 days in order to preserve its tax favored status. This is known as an indirect rollover. Sometimes the rollover is not accomplished within the requisite 60-day period. The IRS issued Revenue Procedure 2016-47 providing some relief if the failure is due to certain enumerated circumstances.
First, the individual must make a written certification to an IRA trustee or plan administrator that satisfies the following conditions:
1. The individual missed the 60-day deadline to complete a rollover due to one or more of the following reasons:
- An error was made by the financial institution receiving the contribution or making the distribution;
- The distribution in the form of a check was misplaced and never cashed;
- The distribution was deposited and remained in an account that the individual mistakenly thought was an eligible retirement plan;
- The individual’s principal residence was severely damaged;
- A family member of the individual died;
- The individual or his/her family member was seriously ill;
- The individual was incarcerated;
- Restrictions were imposed by a foreign country;
- A postal error occurred;
- The distribution was made on account of an IRS levy and the proceeds of the levy have been returned to the taxpayer; or
- The party making the distribution delayed providing the individual with relevant information to complete the rollover despite the individual’s reasonable efforts to obtain the information.
2. The IRS has not previously denied a request for a waiver.
3. The rollover contribution is made to the IRA or plan as soon as practicable (usually within 30 days) following the above-listed reason(s) for the delay.
The Revenue Procedure contains a model Certification for Late Rollover Contribution letter that can be used by individuals seeking a waiver. It should be noted that a self-certification is not deemed to be a waiver by the IRS of the 60-day rollover requirement. However, if the individual qualifies for a waiver, then he/she can use the Model Letter to make a late rollover contribution to another IRA or IRA. If the IRS subsequently audits the individual’s income tax return, it may determine that the individual does not qualify for a waiver, in which event, additional taxes and penalties may be owed.
This Revenue Procedure became effective on August 24, 2016. The IRS also provides some FAQs for individuals, as well as information for retirement plan administrators or IRA trustees receiving a waiver.
The information contained in this article is provided as general guidance and may be affected by changes in law or regulation. This article is not intended to replace or substitute for accounting or other professional advice. Please consult a CBIZ professional. This information is provided as-is with no warranties of any kind. CBIZ shall not be liable for any damages whatsoever in connection with its use and assumes no obligation to inform the reader of any changes in laws or other factors that could affect the information contained herein.