60 DAY ROLLOVER
A CLIENT, AGED 61, RECENTLY RECEIVED A SEVERAGE PACKAGE FROM HER JOB. SHE RECEIVED A LUMP SUM OF HER PENSION AND DEPOSITED THE CHECK INTO HER IRA ABOUT 8-10 DAYS PAST THE 60 DAYS ROLLOVER PERIOD. WHAT OPTIONS DOES SHE HAVE TO NAVIGATE AROUND THE POTENTIAL TAX LIABILITY OF THIS AND ALSO IF SHE DOES INVEST THE FUNDS AND IT GROWS, AND IRS DETERMINES THAT SHE DOES NEED TO TAKE THE MONEY OUT, WILL THE EARNINGS BE TAXABLE TOO?
Permalink Submitted by Alan - IRA critic on Wed, 2019-12-11 22:18
Permalink Submitted by Rene Nourse on Mon, 2019-12-16 19:51
Thank you for sending this document over. FYI, the check was made out to her personally and there was no 20% withholding. So- given that the 5498 will be sent out by the custodian to IRS, how long will it be before she will be notified and also, if the funds are invested and she receives notification that she must withdraw the funds, will the earnings also need to be withdrawn and taxed as well?
Permalink Submitted by Alan - IRA critic on Mon, 2019-12-16 20:57
If she feels that she qualifies for one of the reasons for self certification, and the IRA custodian accepts the late rollover contribution and issues the 5498 showing the self certification, it could take quite awhile for the IRS to contest the certification if they plan to. I do not know if there is any deadline for the IRS to contest. But if they do, the rollover will be treated as an excess IRA contribution, which will have to be removed with allocated earnings to avoid the excise tax. The original distribution would also be taxable and subject to penalty, so that would likely require a 1040X. If the IRS does not act until after the due date, then the excess would have to be dealt with using the post due date procedures requiring the excise tax be paid, but earnings would remain the IRA. In short, it could be well over a year before the IRS acts on the certification, and I do not know how long they take on average, or even if they send a written confirmation of acceptance or not.