60-Day IRA Rollover Automatic Waiver: What IRA Custodians Don't Know or Want You to Know

Let's assume you did the unforgiveable and took a distribution from your IRA (or other retirement plan) that was payable to you, other than a required distribution. Within 60 days you presented the funds to an IRA (or Roth IRA) custodian for redeposit. Then something happened and the funds do not end up in an IRA (or Roth IRA) account. You do not discover the error immediately. Typically it is discovered at tax time. What are your options?

You could just give up and pay income tax and the 10% early distribution penalty, if applicable, on the distribution. The financial institution or your tax advisor may suggest you go for a Private Letter Ruling from IRS asking for more time to complete the rollover. There is an IRS fee for this service and a fee for a preparer to put together the ruling request. Then there is the waiting period while IRS investigates and makes a determination on your request (average time is about nine months).

Or, you might be able to make use of the automatic waiver of the 60-day rollover rule. The following conditions must be met to qualify for an automatic waiver.

• The taxpayer must follow all procedures required by the financial institution for completing a valid rollover - including giving instructions to deposit the funds to an IRA account

• The funds are not timely deposited to an IRA account due solely to an error on the part of the financial institution.

• The funds must be deposited into a valid IRA account by one year from the beginning date of the 60-day rollover period.

• If the financial institution had followed the taxpayer’s instructions, there would have been a valid rollover.

These requirements are found in IRS Revenue Procedure (Rev. Proc.) 2003-16 issued by IRS on January 8, 2003 in Section 3.03.

There is no reporting requirement to IRS on the part of any custodian that utilizes the automatic waiver provision. Why don’t the financial institutions offer this option more often to account owners? Perhaps they don’t want to admit guilt, perhaps they want the IRS “blessing” of a PLR, or perhaps they just don’t know about the automatic waiver. But now you do.


-By Beverly DeVeny and Jared Trexler

Posted in: automatic waiver,Ed Slott,ed slott ira,financial,ira rollover,IRAs,IRS,money,plan for retirement,retirement savings,Roth IRAs