Holiday Horror Series: Part 2- Hectic Holiday Rollovers

by Weintraub Tobin
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With the holidays upon us, we all can relate to how easy it is to mistakenly overlook important things amidst the cheery holiday hustle and bustle: leaving the Christmas ham in the oven a few hours too long, forgetting to pick up your in-laws from the airport, or failing to timely rollover your individual retirement account (IRA) within 60 days of distribution.

While it may be difficult to salvage Christmas dinner and the relationship with your in-laws, there is luckily new relief from the IRS in the event that you forget to timely rollover your IRA.

Upon a distribution from an IRA (or other eligible retirement account), you generally have 60 days to rollover the distribution to another qualifying plan. If the rollover is not made within the requisite time period, it is treated as a taxable distribution with not only ordinary taxes thereon but also a 10% early withdrawal penalty if you are under age 59½.  To get relief from the penalties associated with a late rollover, the IRS previously required all taxpayers to apply for a private letter ruling.

But joy to the world, the IRS has recently released Revenue Procedure 2016-47 providing a streamlined procedure for relief for certain late rollovers. For example, the new streamlined procedure for late rollover relief applies when (1) a distribution, having been made in the form of a check, was misplaced and never cashed; or (2) if the distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan. Additional situations in which streamlined relief is available can be found in the Revenue Procedure.

Under the new streamlined procedure, a taxpayer can simply self-certify their own statement of why they missed the 60 day rollover period and the plan administrator is entitled to rely on this self-certification to conclude that the taxpayer has satisfied the conditions for a waiver of the 60-day rollover requirement. Rev. Proc. 2016-47 even includes a sample self-certification form for the taxpayer to complete and submit to the plan administrator. After submitting the certification to the plan administrator, the taxpayer must make the contribution to the plan or IRA as soon as practicable after the stated reason for the late rollover. The “as soon as practicable” requirement is satisfied if the contribution is made within 30 days after the reason for late rollover no longer prevents the taxpayer from making the rollover.

Alas, while your family may continue to be upset with you over your holiday faux pas, you can at least sleep easy knowing you will not have to face harsh IRS penalties for a simple mistake resulting in a late rollover.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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