Missed the 60 day IRA rollover deadline – what do they now?
A friend took a check to their credit union (CU).
The check was a normal distribution an IRA and payable to the IRA owner.
Hence, the IRA owner had 60 days to rollover the check to an IRA CD at his credit union.
It was my friend’s intent to complete a 60-day rollover to an IRA CD at the CU.
The IRA expert at the CU mistakenly put the proceeds of the IRA distribution check into a taxable CD – not an IRA CD.
Now, the IRA expert at the CU wants my friend to sign a form titled “IRA Certification For Late Rollover Contribution.”
Apparently, if mt friend is ever audited, this is meant to be his “get out of jail free” card for not owing income taxes on the IRA distribution.
Is there anything my friend should do as far as notifying the IRS or requesting an exemption from the 60 day rollover rule from the IRS?
Is the CU form all he needs to “do” in order to claim an exemption from the 60 day rollover rule?
The form includes a paragraph titled “Late Rollover Certification Information”
“Pursuant to Internal Revenue Service (IRS) Revenue Procedure 2020-46, I certify that my contribution of $xx,xxx.xx missed the 60-day rollover deadline for the reason(s) listed below under Late Contribution Reason. I am making this contribution as soon as practicable after the reason or reasons listed below no longer prevent me from making the contribution. I understand that this certification concerns only the 60-day requirement for a rollover and that, to complete the rollover, I must comply with all other tax law requirements for a valid rollover and with your rollover requirements.
Late Contribution Reason
Late Contribution Reason: The distribution was deposited into and remained in an account that I mistakenly thought was an IRA.”
So in picking this particular “Reason,” the CU is blaming the IRA owner.
The IRA owner says the CU was at fault.
In either, event, is my friend OK or does he need to do anything else?
Is this even allowed?
Thank you in advance for your help.
Permalink Submitted by Alan - IRA critic on Thu, 2024-04-11 15:42
Yes, Rev Proc 2020-46 allows the IRA custodian to accept a late rollover for one of the listed reasons on the self Cert form. In this case, if the custodian will not accept the late rollover if custodian error is the listed reason, the friend will have to select the first reason (taxpayer thought that this was an IRA).
In addition to submitting the form to the custodian and keeping a copy, the custodian will have to move the funds into an IRA CD and code that contribution as a late rollover on Form 5498. And the friend must also have a rollover available, which means that no prior distribution taken in the 12 months prior to the CU’s distribution of this amount was done, since this form only corrects a late rollover and does not provide a solution if no 60 day rollover was available in the first place per the one rollover limitation.
If friend invests in banks or CU, they must get in the habit of only moving funds by direct transfer between accounts which are not reportable and are not distributions.
Permalink Submitted by Robert Wright on Thu, 2024-04-11 17:10
Thank you Alan!