Can IRS Waive IRA Rollover Deadline?

By Jon L. Ten Haagen, CFP ®

asktheexpert@longislandergroup.com

 

This week we will stay with the IRA theme and another important part of taking distributions.

We are getting close to the deadline for contributions to your 2016 IRA or ROTH. Why not consider doing your 2017 contribution now rather than waiting 15 months until April 2018. Get your money to work for you tax deferred.

“Can the IRS waive the 60-day IRA rollover deadline?”

Let’s take a look at the rules and how they apply.

If you take a distribution from your IRA intending to make a 60-day rollover, but for some reason the funds don’t get to the IRA trustee in time, the tax impact can be significant. In general, the rollover is invalid, the distribution becomes a taxable event, and you’re treated as having made a regular, instead of a rollover, contribution to the new IRA. But all may not be lost. The 60-day requirement is automatically waived if all of the following apply:

The financial institution actually receives the funds within the 60-day                                                            rollover period; You followed the financial institution’s procedures for depositing funds into the IRA within the 60-day period; The funds are not deposited in an IRA within the 60-day rollover period solely because of an error on the part of the financial institution; The funds are deposited within one year from the beginning of the 60-day rollover period; And the rollover would have been valid if the financial institution had deposited the funds as instructed.

If you don’t qualify for this limited automatic waiver, the IRS can waive the 60-day requirement “where failure to do so would be against equity or good conscience,” such as a casualty, disaster, or other event beyond your reasonable control. However, you’ll need to request a private letter ruling from the IRS, an expensive proposition – the filing fee alone is currently $10,000.

Thankfully, the IRS has just introduced a third way to seek a waiver of the 60-day requirement: Self-certification. Under the new procedure, if you’ve missed the 60-day rollover deadline, you can simply send a letter to the plan administrator or IRA trustee/custodian certifying that you missed the 60-day deadline due to one of 11 specified reasons. To qualify, you must generally make your rollover contribution to the employer plan or IRA within 30 days after you are no longer prevented from doing so. Also, there is no IRS fee.

The downside of self-certification is that if you’re subsequently audited, the IRS can still review whether your contribution met the requirements for a waiver. For this reason, some taxpayers may still prefer the certainty of a private letter ruling from the IRS.

Now, give this a little taught – Would you rather pay out at least $10,000 to the IRS or would you prefer to have your money moved trustee to trustee. They do all the work and you sit back and are sure you will not have a problem. There is no benefit or gain I can think of to be cute with the transfer of your IRA from one to the other.

If you have any questions please give us a shout. We are here to give you clarification. Thank you for all your kind words to me about your enjoyment in reading these articles. Have a great year of health, happiness and prosperity.


Huntington’s Jon L. Ten Haagen, CFP, runs Ten Haagen Financial Services, Inc., a full-service independent financial planning firm, and he is here to answer your questions. In this bi-monthly column, Ten Haagen will answer your financial questions and help you with his expert financial advice. Don’t be shy, our expert is here for you, so feel free to ask away! Email your questions to asktheexpert@longislandergroup.com today, and let our expert help you.

*Ten Haagen is an Investment Advisor Representative offering securities and advisory services offered through Royal Alliance Associates, Inc., member of FINRA/SIPC, and a registered investment advisor. He is also an active community member, serving on several nonprofit boards and as executive officer of the Greater Huntington Boating Council.

**BACK IN HUNTINGTON: The offices of Ten Haagen Financial Services, Inc. have moved back to 191 New York Ave., Huntington. Friends and clients are welcome to stop by, check out the new office and share a cup of coffee with the expert!­­