The IRS has announced a self-certification procedure designed to help recipients of retirement plan distributions who inadvertently miss the 60 –day time limit for rolling these amounts into another retirement plan or individual retirement arrangement (IRA).
This is a huge change for millions of taxpayers, who are not always aware of the strict time limit. Many people have had entire IRAs become subject to income taxes by missing the rollover deadline.
The new procedure applies to retirement-account holders who take possession of assets during a transfer, known as a rollover, which typically involves moving assets from one institution to another. The change does not apply to a direct transfer between trustees or custodians, which is technically not a rollover.
In the past, an eligible distribution from an IRA or workplace retirement plan could only qualify for tax-free rollover treatment if it is contributed to another IRA or workplace plan by the 60th day after it was received. Until 2002, if a taxpayer missed the deadline for any reason, they could not complete the rollover. Since then, taxpayers who fail to meet the time limit could obtain a waiver by requesting a private letter ruling from the IRS and pay a $9,800 user fee to the IRS, plus legal costs.
To qualify for a waiver, the taxpayer must meet one of eleven circumstances contained in the ruling. Among the circumstances that qualifies for this waiver: a misplaced distribution check that was not cashed, severe damage to the taxpayer’s home, the death or illness of a family member or if the taxpayer was incarcerated.
Details can be found in https://www.irs.gov/pub/irs-drop/rp-16-47.pdf
The change in the rule is effective immediately.
Call me at 516-307-1236 if you have questions about how this may affect you.