IRA Rollover Gotcha Down?

We all know the rule:

Sections 402(c)(3) and 408(d)(3) provide that any amount distributed from a qualified plan or IRA will be excluded from income if it is transferred to an eligible retirement plan no later than the 60th day following the day of receipt. A similar rule applies to § 403(a) annuity plans, § 403(b) tax sheltered annuities, and § 457 eligible governmental plans. See §§ 403(a)(4)(B), 403(b)(8)(B), and 457(e)(16)(B).

No, actually, we all know that rule stated this way:

You have 60 days to get your distribution from one IRA or retirement plan to another IRA or retirement plan, or you suffer the tax consequences. The “getting to one from another” is called a rollover–typically an IRA rollover.

If you fail to complete the rollover within 60 days, the penalties can be severe, including income and excise taxes, interest, and penalties.

get-out-of-jail-freePeople do rollovers for a variety of reasons. They retire. They change jobs. They become dissatisfied with their current IRA provider. In those cases and others, there’s a need to change move your retirement money from one plan to another. And typically the move goes smoothly–without a hitch.

Except when it doesn’t. What if the rollover takes more than 60 days? Then what?

Well, the IRS recently issued a new rule, Revenue Procedure 2016-47, that recognizes certain realities: Life happens.

  • Checks get misplaced
  • Houses burn down
  • The Post Office screws up
  • The fish were biting (just kidding)

Yup. If life hits you in the face, the IRS is going to wipe the tears away and tell you to go back outside and play–that is, they’re going to waive any penalties. There is a catch–of course:

  • What hit you in the face must be among the many excuses the IRS lists in the Revenue Procedure 2016-47 AND
  • You must complete the rollover “as soon as practicable” after the intervening reason no longer exists (there’s a 30 day safe harbor, though you can take longer) AND
  • You must self certify to your new plan administrator or IRA trustee that you meet the requirements of the Revenue Procedure AND
  • The IRS previously must not have denied a waiver.

The Revenue Procedure provides a  handy self-certification letter, the wording of which you must follow almost to the T.  You can find the sample letter here, in the appendix of the actual Revenue Procedure. Enjoy the read.

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