Rollover Relief Will Come with IRS Scrutiny in 2017

This past summer the IRS had good news for those who missed the deadline for a 60-day retirement account rollover. The IRS will allow your late rollover to be accepted if you provide the receiving financial institution with a “self-certification.” The new relief procedure applies to 60-day rollovers from both company plans and IRAs. The IRS even provides a model letter that can be used. Self-certification is an immediate and cost-free fix for a missed rollover deadline. This new tool can potentially save you from taxes, penalties, and even the loss of your retirement savings.

IRS is Watching

Proceed with caution if you are using the new self-certification procedure. You should be aware that self-certification is not the same as a waiver of the 60-day rule. You are not necessarily completely off the hook. When you file your taxes, you may report your contribution as a valid rollover on your tax return, but the story does not end there. The IRS can still later audit your return and determine that a rollover was not appropriate.

How will the IRS know that you did a late rollover? Well, the IRS will know because beginning in 2017, the custodian of your IRA will tell them. The IRS has changed Form 5498 “IRA Contribution Information” for 2017 to show that a late rollover was accepted. Form 5498 is the form that the financial organization uses to report your rollover to the IRS. On this form the financial institution will report your late rollover contributions that you have self-certified in box 13a and report the self-certification code (code C) in box 13c.

This extra reporting may be an invitation to audit, so be careful and protect yourself if you do use the new self-certification procedure to complete a late rollover. Here are some steps you can take:

• Be sure that the reason you missed the 60-day deadline was one of the 11 reasons the IRS lists in the ruling. Only those reasons will work. If you were late for another reason you are out of luck.

• Fill out the self-certification letter correctly and give it to your IRA custodian. Follow up! Paper work can get misplaced.

• Get your late rollover done as soon as possible. Getting it done within 30 days is the best way to go since the IRS says that automatically qualifies as a safe-harbor requirement.

• Keep all of your documentation on file. You’ll want it if the IRS comes asking questions later.

Take Away

Self-certification is a useful tool that will save many retirement accounts. Maybe even yours. However, if you are self-certifying you need to be aware that there is a trade-off. The IRS will be watching. The new reporting rules for 2017 will allow them to scrutinize these transactions. Keep this in mind and proceed with caution when you do that late rollover.