A new procedure for IRA rollovers has recently been introduced by the IRS to ease the penalty for taxpayers who fail to meet the time limit. As stated in the Revenue Procedure 2016-47, here are 11 mitigating circumstances when a waiver of the 60-day limit would apply:
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- An error was committed by the financial institution making the distribution or receiving the contribution.
- The distribution was in the form of a check and the check was misplaced and never cashed.
- The distribution was deposited into and remained in an account that I mistakenly thought was a retirement plan or IRA.
- Principal residence was severely damaged.
- One of the family members died.
- The taxpayer or one of his family members got seriously ill.
- The taxpayer 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 me.
- The party making the distribution delayed providing information that the receiving plan or IRA required to complete the rollover despite my reasonable efforts to obtain the information.
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The IRS also included a ‘sample self-certification letter’ that can be used to notify the administrator or trustee about their situation. Previously, taxpayers who received a rollover from their retirement plan had 60 days to deposit the money into another employer’s retirement plan or into an IRA. Failing to meet the time limit would make the entire distribution a taxable income, as the IRS will assume that the money was used. They can apply for a change of ruling by sending a private letter to the IRS.
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