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Rollover Relief

 October 4 2016     Anna Pfaehler

“To err is human; to forgive, divine.”  - Alexander Pope

The IRS has acknowledged that taxpayers are human and sometimes we humans make mistakes. Especially, if it is something we are unaccustomed to doing like executing a rollover of a retirement account. 

There are two methods to rollover a retirement account: 

  1. A direct rollover or trustee-to-trustee transfer. 
  2. The trustee or plan administrator pays the proceeds to you. You deposit the proceeds in an IRA or retirement plan within 60 days.

Option 1 is my preferred method because it eliminates a step and there is less room for error. 

With option 2, you personally become involved and it is your responsibility to make sure the funds reach their ultimate destination within the allotted time. Plenty can and does go wrong. However, if your reason for missing the deadline happens to be one of the 11 common reasons listed by the IRS, you can now write a self-certification that will permit you to deposit the funds with the new trustee even if the 60-day window has closed. Previously, such mishaps required the IRS’ involvement to rectify along with significant time and money. 

The permissible reasons include: 

  1. An error on the part of either the receiving or distributing financial institutions; 
  2. The distribution check was misplaced and never cashed; 
  3. You deposited the check into an account you thought was an eligible retirement account;
  4. Your principal residence was severely damaged;
  5. A member of your family died; 
  6. You or a member of your family was seriously ill; 
  7. You were incarcerated; 
  8. Restrictions were imposed by a foreign country; 
  9. A postal error occurred; 
  10. The distribution was made on account of a levy and the proceeds have since been returned to you; or
  11. You received information necessary to complete the rollover from the distributing plan too late. 

You also have to certify that all the other requirements for a valid rollover were met and that the rollover contribution was made as soon as practicable after the reason for delay was resolved. 

A receiving trustee can accept a self-certification that one of these events caused the tardiness of the deposit and accept the funds into your new retirement account. You can treat the transaction as a valid rollover. However, the certification can be audited and overturned if the IRS determines you did not qualify for a waiver. 

The IRS’s willingness to forgive certain offenses here is not proof of their divinity. This likely stems from budget constraints and being unwilling to spend resources on rubber stamping certain waivers. It is important to note that while this new process makes life easier for some, it is not a blanket waiver of the 60-day rule. Utilizing a direct rollover or trustee-to-trustee transfer is still my preferred rollover method.