Did you miss the deadline to rollover your retirement plan or traditional IRA funds due to circumstances beyond your control? In the past, such an issue would have resulted in issues on your tax return and/or an expensive private letter ruling request, culminating in a full-fledged assault on your retirement nest egg. Fortunately, the IRS released new guidance that may eliminate this costly headache by simplifying the way retirement rollovers are managed when they are made outside of the 60-day rollover deadline.
Effective Aug. 24, 2016, according to the IRS, taxpayers who miss the 60-day deadline for at least one of the 11 specific reasons outlined in Rev. Proc. 2016-47, may avoid immediate taxation if a self-certification letter is submitted to the IRA trustee or plan administrator. Under the new rule, as long as the reason for their tardiness meets one or more of the 11 conditions outlined in the provision and the late rollover contribution is completed “as soon as practicable after the applicable reason (s) no longer prevents the taxpayer from making the contribution. The practicable timeframe is noted as 30 days in the guidance.
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With regard to the validity of the taxpayer’s claim, the revenue procedure indicates that self-certification is all that’s required to be completed and submitted to the trustee or plan administrator. Please note, however, that the self-certification is not to be considered a waiver of the 60-day requirement as the IRS reserves the right to deny the request if an audit finds that the taxpayer failed to meet the requirements of Rev. Proc. 2016-47.
11 Reasons To File Your Late Rollover Contribution Self-Certification Letter
As long as the IRS has not previously denied the taxpayer’s waiver request made with respect to a rollover contribution of all or part of a related distribution, the 11 conditions considered to be acceptable for missing the 60-day deadline are:
- An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
- The distribution having been made in the form of a check, was misplaced and never cashed;
- The distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;
- The taxpayer’s principal residence was severely damaged;
- A member of the taxpayer’s family died;
- The taxpayer or a member of the taxpayer’s family was seriously ill;
- The taxpayer was incarcerated;
- Restrictions were imposed by a foreign country;
- A postal error occurred;
- The distribution was made on account of a levy under § 6331 and the proceeds of the levy have been returned to the taxpayer; or
- The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain the information.
This is a big win for the American taxpayer, as it effectively lifts a range of restrictions known to hinder taxpayers’ efforts to save for their golden years due to circumstances beyond their control – saving “thousands of IRAs from the harsh bite of needless and accelerated taxation.” To make a certified late rollover contribution, your letter must also adhere to certain specifications. I recommend customizing the letter provided by the IRS in Rev. Proc. 2016-47. It can be accessed here. Once you have completed the letter, remember to retain a copy of it in your files to ensure it is available if the IRS requests this information during an audit.
Email Rea & Associates to learn more about how this new provision will be beneficial to you.
By Wendy Shick, CPA, CFP (Mentor office)