IRS Grants Sweeping Relief To Retirement Savers Who Miss Rollover Deadline
The IRS made it dramatically easier and cheaper for taxpayers who miss the 60 day deadline for rolling over retirement account money to fix their errors.
By law, money received by a taxpayer from an IRA, 401(k), or other workplace retirement plan, must be contributed (i.e. rolled over) to another retirement account within 60 days to escape immediate taxation. Otherwise, it is considered a distribution subject to regular taxes and (if you’re under 59 ½), a possible 10% early withdrawal penalty.
Till now, however, to get 60 day relief, you had to apply to the IRS for what’s known as a private letter ruling. That meant paying the IRS a stiff fee (which rose on January 1, 2016 to a stunning $10,000), plus shelling out another $5,000 to $10,000 for a tax pro to prepare the private letter ruling request. The ruling took six to nine months, and you couldn’t roll the money into a new account until the IRS gave the green light.
But in Revenue Procedure 2016-47, both issued and effective today, the IRS has created a new “self-certification” procedure that allows someone who misses the 60 day deadline to avoid the expense and delay of obtaining a private letter ruling. Thus, a taxpayer submits a model IRS letter to the new retirement account custodian, checking in that letter one of 11 acceptable excuses for missing the deadline. This isn’t an unconditional pass—the IRA custodian will report the letter to the IRS and should the taxpayer be audited, the IRS can still determine he didn’t quality for 60 day relief.
These 11 excuses include an error by a financial institution; a taxpayer misplacing (and never cashing) the retirement account distribution check; and a taxpayer mistakenly putting the check in a taxable account he thought was an eligible retirement account. There’s also lots of dispensation for personal problems, including a death or serious illness in the family; a home being severely damaged; and even a taxpayer being unable to complete the rollover because he was incarcerated.
Original Story at Forbes.