Generally, money received from a retirement account such as an IRA or a 401(k) must be contributed or rolled over to another retirement account within 60 days failing which the money would be treated as a distribution and may be subject to tax and/or penalty (if there is an early withdrawal). Previously, if you failed to meet the deadline, you could seek a waiver by applying for a private letter ruling which would cost more than $10,000 (IRS fees and legal fees) and nothing can be done until you obtain written approval from the IRS. Since the cost of obtaining a private letter ruling is cost prohibitive, many taxpayers lose their retirement savings to taxes and penalties.
Effective August 24, 2016, the IRS issued Revenue Procedure 2016-47 which allows individuals who missed the 60 day deadline to submit a certificate which has 11 acceptable excuses for missing the deadline to the new retirement account custodian and avoid the expense and delay of obtaining a private letter ruling. Please note that there are conditions attached to the self-certificate process. The custodian will have to report to the IRS if contributions are accepted after the 60 day period. The certificate is not a waiver of the 60 day rollover requirement by the IRS and if the issue arises during an audit, the IRS can decide that the certificate was wrongly issued and impose penalties instead.
For related articles, see:
- IRS Grants Sweeping Relief to Retirement Savers Who Miss Rollover Deadline by Forbes
- New Revenue Procedure 2016-47 Streamlines Late Rollover Relief by WealthManagement.com
- New IRS Procedure May Help People Making IRA and Retirement Plan Rollovers by Arizona Daily Independent