Small Business Taxes & Management^TM--Copyright 2016, A/N Group, Inc.

You can move retirement plan funds into another plan or institution by either a trustee-to-trustee transfer or by getting a check and redepositing in the new plan within 60 days. While a trustee-to-trustee move is safer, getting a check is usually easier and quicker. But that 60-day time limit is absolute. Miss the deadline and you've got a taxable transaction plus potential penalties if you're not age 59-1/2 or older.

The IRS routinely grants waivers to the 60-day deadline, but you've got to request a letter ruling which can be costly. Waivers are granted for taxpayers who are seriously ill (e.g., hospitalized, not for a sore throat), an error by the financial institution, etc.

Revenue Procedure 2016-47 provides a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60-day time limit for properly rolling these amounts into another retirement plan or individual retirement arrangement (IRA).

Rev. Proc. 2016-47 explains how eligible taxpayers, encountering a variety of mitigating circumstances, can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes. In addition, the revenue procedure includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver.

A taxpayer who missed the time limit will now ordinarily qualify for a waiver if one or more of 11 circumstances, listed in the revenue procedure, apply to them. They include:

• An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
  
• The distribution, having been made in the form of a check, was misplaced and never cashed;
  
• The distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;
  
• The taxpayer's principal residence was severely damaged;
  
• A member of the taxpayer's family died;
  
• The taxpayer or a member of the taxpayer's family was seriously ill;
  
• The taxpayer was incarcerated;
  
• Restrictions were imposed by a foreign country;
  
• A postal error occurred;
  
• The distribution was made on account of a levy under Sec. 6331 and the proceeds of the levy have been returned to the taxpayer; or
  
• The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer's reasonable efforts to obtain the information.

This is hardly a free pass. Your situation may not fall into one of the ones above--and no others qualify for self-certification. In addition, you can't use the self-certification process if the IRS has previously denied a waiver request with respect to a rollover of all or part of the distribution to which the contribution relates. Finally, you must make the contribution to the plan or IRA as soon as practicable after the reason no longer prevents you from making the contribution. The IRS included a 30-day safe harbor in the revenue procedure. If the contribution is made after 30 days, you'll need an appropriate excuse.

The self-certification is not a waiver by the IRS of the 60-day requirement. However, a taxpayer may report the contribution as a valid rollover unless later informed by the IRS. If audited, even for other reasons, there's a good chance the examination will include a review of the circumstances for missing the deadline. A material misstatement in the self-certification letter, failure to contribute the funds as soon as practicable, or the reason in the letter did not prevent you from rolling over the funds, could result in additions to income and penalties.

Ordinarily, the IRS and plan administrators and trustees will honor a taxpayer’s truthful self-certification that they qualify for a waiver under these circumstances. Moreover, even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination. Other requirements, along with a copy of a sample self-certification letter, can be found in the revenue procedure. The IRS encourages eligible taxpayers wishing to transfer retirement plan or IRA distributions to another retirement plan or IRA to consider requesting that the administrator or trustee make a direct trustee-to-trustee transfer, rather than doing a rollover. Doing so can avoid some of the delays and restrictions that often arise during the rollover process.

--Last Update 08/29/16