Remember, you can make only one tax-free, 60-day rollover from any IRA you own (traditional or Roth) to any other IRA you own in any 12-month period, regardless of the number of IRAs you own. This limit does not apply to direct rollovers or trustee-to-trustee transfers or to Roth IRA conversions.
While it may be tempting to give yourself a free 60-day loan, there’s no need to taunt the rollover gods by risking inadvertent violation of the 60-day limit. If you do take a distribution from your IRA intending to make a 60-day rollover, but for some reason the funds don’t get to the new IRA trustee in time, the tax impact can be significant. In general, the rollover is invalid, the distribution becomes a taxable event, and you’re treated as having made a regular, instead of a rollover, contribution to the new IRA.
But all may not be lost. The 60-day requirement is automatically waived if all of the following apply:
- A financial institution actually receives the funds within the 60-day rollover period.
- You followed the financial institution’s procedures for depositing funds into an IRA within the 60-day period.
- The funds are not deposited in an IRA within the 60-day rollover period solely because of an error on the part of the financial institution.
- The funds are deposited within one year from the beginning of the 60-day rollover period.
- The rollover would have been valid if the financial institution had deposited the funds as instructed.
If you don’t qualify for this limited automatic waiver, the IRS can waive the 60-day requirement “where failure to do so would be against equity or good conscience,” such as a casualty, disaster, or other event beyond your reasonable control. However, you’ll need to request a private letter ruling from the IRS, an expensive proposition — the filing fee alone is currently $10,000.
Thankfully, the IRS introduced a third way to seek a waiver of the 60-day requirement: self-certification. Under the procedure, which has no IRS fee, if you want to make a rollover but the 60-day limit has expired, you can simply send a letter (IRS Revenue Procedure 2016-47 contains a sample) to the plan administrator or IRA trustee/custodian certifying that you missed the 60-day deadline due to one of the following 11 reasons:
- The financial institution receiving the contribution, or making the distribution to which the contribution relates, made an error.
- You misplaced and never cashed a distribution made in the form of a check.
- Your distribution was deposited into and remained in an account that you mistakenly thought was an eligible retirement plan.
- Your principal residence was severely damaged.
- A member of your family died.
- You or a member of your family was seriously ill.
- You were incarcerated.
- Restrictions were imposed by a foreign country.
- A postal error occurred.
- Your distribution was made as a result of an IRS tax levy, and the proceeds of the levy have been returned to you.
- The party making the distribution delayed providing information that the receiving plan or IRA needed to complete the rollover, despite your reasonable efforts to obtain the information.
To qualify for this procedure, you must make your rollover contribution to the employer plan or IRA as soon as practicable after the applicable reason(s) above no longer prevent you from doing so. In general, a rollover contribution made within 30 days is deemed to satisfy this requirement.
The downside of self-certification is that this self-certification process is not an automatic waiver by the IRS of the 60-day rollover requirement. The self-certification simply allows you and the financial institution to treat and report the contribution as a valid rollover. If you’re subsequently audited, the IRS can still review whether your contribution met the requirements for a waiver. For this reason, some taxpayers may still prefer the certainty of a private letter ruling from the IRS.
Prepared by Broadridge Advisor Solutions. Edited by BFSG. Copyright 2022.
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