Automatic Waivers of the 60-Day IRA Rollover Rule

Tuesday, December 10, 2013

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

Whenever you receive an IRA distribution, you have 60 days from the day you receive it to roll it over, tax-free, to another IRA. The failure to complete a rollover within 60 days means the funds aren’t eligible for rollover, and that means the IRA distribution will be taxable to you. Also, if you’re under age 59 ½ at the time, the 10% early distribution penalty will apply. But in some cases, you can get more time to complete a tax-free rollover.

You can apply for an IRS private letter ruling (PLR) and ask the IRS for more time to complete a rollover due to extenuating circumstances (known as a hardship waiver of the 60-day rollover rule), but the IRS charges a fee of up to $3,000. Plus, you’ll likely have to pay a CPA or lawyer to draft the PLR request.

There are some cases when you won’t need a PLR because you qualify for an automatic waiver of the 60-day rule. The 60-day rollover rule is automatically waived if all of the following occurred:

  • You delivered the IRA funds to your IRA custodian within 60 days
  • You followed all of the custodian’s procedures for a rollover (e.g., you signed the proper documents)
  • The funds are eventually rolled over to your IRA within one year of when you received the IRA distribution
  • The reason that the IRA funds weren’t timely deposited into your IRA was solely due to a mistake by the receiving IRA custodian.

In other words, the automatic waiver applies when you did everything correctly within 60 days, but the financial institution made a mistake and didn’t complete the rollover as you had instructed. Assuming you or the custodian finds the mistake within one year, and the custodian agrees it was their fault, the automatic waiver applies and you won’t have to apply to the IRS for a hardship waiver. It is also probably a good idea for you to have some written proof from the custodian that it qualifies for the automatic waiver. For example, perhaps the custodian could put a note in your file or give you a letter in case the IRS ever questions you about the rollover.
 

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