One of the more common mistakes people make in handling their retirement accounts is missing the 60-day deadline for completing a rollover. If you have a good excuse, you can get a ruling from the IRS that avoids the negative tax consequences, but that process is painfully expensive in time and money. Thanks to new guidance from the IRS, in many cases this won’t be necessary.
When you receive an eligible distribution from a retirement plan or IRA, you have 60 days to deposit the money in another retirement plan or IRA if you want to complete a rollover. Experts are unanimous in recommending that you avoid the possibility of missing this deadline by arranging a direct rollover if at all possible. Failure to complete a rollover can cause a meaningful reduction in the savings you’ll have available for retirement. For a variety of reasons, people don’t always follow this advice, and inevitably some of them fail to meet the deadline.
If you have a good excuse, the IRS can waive the 60-day requirement. Their rulings on this issue have been quite reasonable. Don’t expect sympathy if you were doing something improper, like using a 60-day rollover to take a short-term loan from your retirement account. People who miss the deadline through no fault of their own obtain relief, however. The IRS even accepts the excuse that you misplaced the distribution check and never cashed it.
Yet the process of obtaining such a ruling from the IRS is costly. For smaller distributions, it may be less expensive to accept the consequences of a failed rollover. For larger ones, filing fees and professional fees incurred to obtain an IRS waiver amount to a significant penalty even when the failure is entirely innocent.
Relief for late rollover
The IRS has issued guidance under which you can complete a rollover outside the 60-day window without first obtaining a ruling if your situation fits within any of the most common categories. Illness, death in the family, damage to your home, misdirected mail, incarceration — any of these and more are acceptable excuses if they prevented you from acting on time. For a complete list, use the link below to obtain a copy of the guidance.
The IRS couldn’t cover every possibility, and there are perfectly good excuses that aren’t on the list. The check was in your car when the car was stolen. The check is in your home but you can’t get there due to a natural disaster or because you have an abusive spouse. The IRS would surely grant relief in these situations, but it appears a ruling would still be necessary. Yet a majority of people who have a good excuse for missing the deadline will be able to use the new procedure.
You can’t use this procedure if the IRS has already denied a waiver of the 60-day limit for the same distribution. Also, you have to act promptly. You’re required to complete the rollover “as soon as practicable” after the problem that prevented you from meeting the deadline disappears. As a safe harbor, the IRS says you meet this requirement if you act within 30 days.
A key part of this procedure is that you provide certification to the retirement plan or IRA provider concerning the reason for missing the 60-day deadline. The law says they aren’t supposed to accept a late rollover contribution without approval from the IRS. This guidance says they can accept a late rollover if it’s accompanied by this certification unless they have actual knowledge that it’s false.
This self-certification can’t be used for any other purpose, such as establishing that your distribution was eligible for rollover in the first place. And it doesn’t create an IRS waiver. They can still penalize you for a failed rollover if they determine that your certification was false. Yet the procedure allows the retirement plan or IRA provider to accept a late rollover, and allows you to report it as a valid rollover unless later informed otherwise by the IRS.
You don’t have to file this certification with the IRS. Simply provide it to the retirement plan administrator or the financial institution where you have your IRA. Maintain a copy in your permanent records relating to the retirement account.
An appendix to the guidance provides the language you should use in making this certification.
This guidance was issued in the form of a revenue procedure. Its effective date is August 24, 2016, the same day it was issued.
details: Rev. Proc. 2016-47