Generally, an amount distributed from a qualified retirement plan (including an employer-sponsored plan and an IRA) is excluded from income if it is transferred to another plan within 60 days following receipt. In the past, if the 60-day deadline was missed, the IRS required that the taxpayer request a private letter ruling (and pay a fee) to obtain a waiver of the 60-day requirement based on hardship.
Pursuant to recent IRS guidance,1 if the 60-day deadline is missed, a taxpayer can now (as of August 24) self-certify, subject to verification during an audit, eligibility for a waiver of the 60-day rollover requirement. The plan administrator or IRA custodian can rely on the certification in accepting and reporting receipt of the rollover.
Self-certification is available only if the taxpayer missed the 60-day deadline for one of the 11 following reasons:
- 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 due to a tax lien levy and the proceeds were returned to the taxpayer.
- The party making the distribution to which the rollover relates delayed providing information that the receiving plan required in order to complete the rollover, despite the taxpayer’s reasonable efforts to obtain the information.
Taxpayers can make the certification using the model certification letter provided in the guidance, available here, or by using a letter that is substantially similar to the model letter.
The certification is available if the contribution is made to the plan “as soon as practicable” – generally meaning within 30 days – after any one of the above impediments is remedied, and the rollover in question was not the subject of a previous IRS waiver denial.
One caveat: A plan administrator or IRA custodian may not rely on the taxpayer’s self-certification if the administrator or custodian has actual knowledge that is contrary to the self-certification.
The new guidance essentially provides flexibility for plan administrators to accept rollovers that were not received by the 60-day deadline. However, for the taxpayer, the IRS still retains the right during an audit to challenge the taxpayer’s eligibility for the waiver (for example, if the IRS believes that there is a material misstatement in the self-certification or that the contribution was not made as soon as practicable after the impediment was resolved). In that case, the taxpayer may be subject to tax on the additional income as well as penalties.
Before accepting late rollover contributions through taxpayer self-certification in accordance with the recent IRS guidance, the plan administrator should review the governing plan document to confirm that it does not technically preclude (without a relevant exception) rollover contributions after the general 60-day rollover deadline.
1 IRS Revenue Procedure 2016-47.