A taxpayer who receives a distribution from a qualified retirement plan or IRA can continue the tax deferred status of the amounts distributed by rolling over the distribution to another qualified plan or IRA within 60 days from the date of the distribution. When the rollover does not occur by the 60th day, the ability to defer taxation is lost. However, under limited circumstances, the IRS permits a waiver of the 60-day rule if the failure to timely complete the rollover was due to events beyond the control of the taxpayer and the taxpayer applies for an expensive ($10,000) IRS private letter ruling.
In August 2016, the IRS broadened the opportunity for waiver by authorizing taxpayers to self-certify the reasons for waiver of the 60-day rule and allowing the IRA custodian or plan administrator receiving the late rollover to rely on the self-certification. Under the new procedure, self-certification is only permitted for limited reasons. These are:
- Financial institution error
- Misplaced and uncashed distribution check
- Distribution mistakenly deposited in ineligible account
- Severe damage to taxpayer’s principal residence
- Death of a member of taxpayer’s family
- Serious illness of taxpayer or member of taxpayer’s family
- Taxpayer incarceration
- Restrictions of a foreign country
- Postal error
- Distribution due to IRS levy and proceeds of levy returned to taxpayer
- Party making the distribution delayed providing information the receiving plan administrator or IRS custodian needed to complete the rollover.
There are a number of other requirements for the self-certification to be valid, including that the rollover be completed as soon as practicable after one of the listed circumstances no longer prevents the rollover. Completion of the rollover within 30 days satisfies this requirement. The self-certification rule is an important opportunity for taxpayers who did not rollover their distributions within 60 days but want to continue to the tax deferral of the amounts distributed.
For more information, please contact Jordan Schreier in our Ann Arbor, Mich. office at 734-623-1945.
