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Missed the Rollover Deadline? Now You Can Help Yourself

New self-certification procedure will enable some investors to issue their own hardship waivers of the 60-day deadline for completing the rollover of a retirement plan distribution.

If you missed the 60-day deadline for completing the rollover of your retirement plan distribution, the IRS may have just made things a lot easier for you: They have created a new "self-certification" procedure that will enable some people to issue their own hardship waivers of the 60-day rollover deadline.

If your facts fit into one of the categories in the Revenue Procedure, then all you have to do is fill out the self-certification letter and give it to the administrator of the plan or IRA you're trying to put the money into. The plan administrator can rely on that to accept your money.

Of course if the IRS audits you and finds you lied on the certificate, you are going to owe all kinds of taxes and penalties. But for honest people who happen to fit the categories in the Rev. Proc., this is a wonderful development. Previously the only way to get that deadline waived was to apply to the IRS for your own Private Letter Ruling (PLR), which involves a $10,000 filing fee and a one-year (or more) wait!

The IRS lists 11 "hardships" that permit use of the self-certification procedure. The most popular one will be financial institution error. That is the basis for most of the waivers the IRS has issued over the 15 years since hardship waivers were born in 2001. Here are three examples out of the hundreds of financial institution blunders that have justified IRS waivers:

Financial institution informed taxpayer and her advisor (twice) that her account was not an IRA. The account statement did not reveal it was an IRA. So when taxpayer withdrew the money and transferred it to another institution, she did not put it into an IRA. Two years later the first institution informed her that, actually, it was an IRA! Late rollover allowed: PLR 201416013.

With the assistance of a representative of the bank, in 2008, taxpayer completed the form for creating a rollover traditional IRA and deposited her rollover check. The form "clearly indicated" the intent to roll into a traditional IRA. Instead, the bank put the money into a Roth IRA, a mistake that was not discovered until 2013, when the certificate of deposit matured. Late rollover allowed (for the original rollover amount, not the five years' worth of earnings): PLR 201524027.

Financial institution was supposed to transfer taxpayer's required minimum distribution from her IRA to her taxable account. Which it did. In fact, they did it twice, due to a coding mistake. Taxpayer didn't notice the mistaken double distribution until the following year. Late rollover of second distribution allowed: PLR 201429032.

If your facts sound like these facts, then you qualify for the self-certification procedure.

However, it's not enough just to assert "financial institution error"; you have to prove it. In the above examples, there were big, obvious financial institution goofs, and the institutions admitted their mistakes. If you don't have that kind of evidence you may not be entitled to the self-certification waiver. Consider:

In PLR 201432020, taxpayer closed out her IRAs at Financial Institution D but did not deposit the proceeds into new rollover IRAs until after expiration of the 60-day period. She said she was late because she relied on Financial Institution D "to provide guidance regarding the rules associated with her IRA investments, specifically the 60-day rollover period." The IRS refused to give her a waiver, because there was no documentation that the financial institution was her financial advisor: "... the Code imposes no ... obligation on IRA custodians [to explain the 60-day rule]. Absent actions on the part of a financial institution undertaking such an obligation we do not recognize this failure as financial institution error."

Whenever the mistakes made were all your own, you are unlikely to qualify for a waiver. For example, a taxpayer who thought she had 60 business days rather than 60 calendar days to complete the rollover did not get a waiver: PLR 201449009. The taxpayer who gave her IRA distribution check to her husband to reinvest without telling him it was an IRA did not get a waiver: PLR 201418063. The taxpayer who requested a distribution to himself of his entire qualified plan balance, rather than a direct rollover to an IRA, thereby triggering mandatory income tax withholding (which he was informed about) was not granted a waiver to allow him to wait until he got the taxes refunded to complete rollover of the withheld portion: PLR 201419026.

Financial institution error is just one of the 11 causes for which self-certification can be used. There can be other valid reasons for a waiver of the deadline besides those 11, but you will have to use the private letter ruling/$10,000 filing fee procedure for those.

The moral of the story is, don't use the 60-day rollover--always use direct transfers instead. If you have to use a rollover, document your instructions and intent--then watch like a hawk to make sure those are carried out. That way if a mistake is made, you'll catch it right away and you won't need a waiver to fix the error … either self-certification or private letter ruling!

Where to read more: The self-certification procedure for authorizing a waiver of the 60-day rollover deadline is contained in IRS Revenue Procedure (Rev. Proc.) 2016-47, 2016-37 IRB, 8/24/16, amending Rev. Proc. 2003-16, 2003-1 C.B. 359.

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