“My client has heard there is a way to obtain a waiver of the 60-day rollover time limit. Can you provide the requirements?”
ERISA consultants at the Retirement Learning Center Resource Desk regularly receive calls from financial advisors on a broad array of technical topics related to IRAs and qualified retirement plans. We bring Case of the Week to you to highlight the most relevant topics affecting your business. A recent call with an advisor in Maryland is representative of a common inquiry involving rollovers.
Highlights of discussion
Yes, in fact, there are three ways a recipient of an eligible rollover distribution from an IRA or qualified retirement plan may obtain a waiver of the requirement to roll over the distribution within 60 days in order to avoid tax consequences. Your client may obtain a waiver by: 1) qualifying for an automatic waiver; 2) requesting and receiving a private letter ruling granting a waiver; or 3) self-certifying that he or she meets the requirements of a waiver, and the IRS determines during an audit of your client’s income tax return that he or she does qualify for a waiver.
Internal Revenue Code Sections (IRC §§) 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 IRC §403(a) annuity plans, IRC §403(b) tax sheltered annuities, and IRC §457(b) eligible governmental plans [please see §§ 403(a)(4)(B), 403(b)(8)(B), and 457(e)(16)(B)].
The automatic waiver comes into play when the failure to complete the rollover timely results from an error made by the receiving financial organization. In order to qualify, all of the following must be satisfied:
1. The financial organization received the funds before the end of the 60-day rollover period;
2. The individual followed all of the procedures set by the financial organization for depositing the funds into an IRA or other eligible retirement plan within the 60-day rollover period (including giving instructions to deposit the funds into a plan or IRA);
3.The funds were not deposited into a plan or IRA within the 60-day rollover period solely because of an error on the part of the financial organization;
4. The funds are deposited into a plan or IRA within one year from the beginning of the 60-day rollover period; and
5. It would have been a valid rollover if the financial organization had deposited the funds as instructed.
Your client could apply for a 60-day rollover waiver by requesting a private letter ruling (PLR) from the IRS according to the procedures outlined in Revenue Procedure 2003-16 and Revenue Procedure 2017-4. Note that an IRS user fee of $10,000 applies to the request. The IRS will issue a PLR waiving the 60-day rollover requirement in cases where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster or other events beyond the reasonable control of the taxpayer.
Finally, your client may be able to “self certify” that he or she qualifies for the waiver if all of the following are true:
- Your client presents a letter (a model is included in Revenue Procedure 2016-47) to the receiving financial organization that certifies the late rollover is eligible for the waiver;
- The rollover contribution is, otherwise, a valid rollover (except the 60-day deposit requirement);
- Your client can demonstrate that one or more of the 11 approved reasons listed in Revenue Procedure 2016-47 prevented him or her from completing a rollover before the expiration of the 60-day period (e.g., the distribution was deposited into an account that your client mistakenly thought was a retirement plan or IRA);
- The distribution came from your client’s IRA or retirement plan;
- The IRS has not previously denied a request for a waiver (see previous bullet);
- The rollover contribution is made to an eligible plan or IRA as soon as possible (usually within 30 days) after the reason for the delay no longer prevents the individual from making the contribution; and
- The representations the individual makes in the certification letter are true.
The IRS has provided three potential ways to obtain a waiver of the 60-day rollover time limit. Distribution recipients should carefully consider which may be most appropriate for their situations.