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July Ruling to Remember: Private Letter Ruling Tackles 60-Day IRA Rollover Rule

This month's IRA Updates looks like Private Letter Ruling 201324022, in which IRS waived the rollover requirement due to a fraudulent withdrawal by the husband in this case. We look at the case and the ruling below.

A taxpayer we will call Debra asserted that her husband, who we will call Bill, took a distribution from her IRA without her knowledge or consent on January 5, 2009. Debra contended that her failure to accomplish a rollover within 60 days was due to the fraudulent withdrawal of amounts from her IRA without her consent.

When Debra and Bill wed in 2001, he completed powers of attorney documents as part of the couple's estate planning. Debra understood and intended that the power of attorney be valid for contexts in which she became incapacitated, disabled, or otherwise unable to make her own financial decisions. She did NOT understand or intend to empower Bill to make all financial decisions on her behalf.

Bill took a distribution from Debra's IRA and asserted orally and in writing that he was acting in his capacity as Debra's power of attorney and that he needed the distribution for Debra's medical expenses. Debra asserted that she did NOT need the distribution for medical expenses nor did she communicate any such need to Bill. She then discovered that Bill lost the entirety of distributed funds because of a gambling addiction.

Debra revoked the power of attorney and provided substantial documentation of Bill's gambling addiction, including a statement from a treating physician. Debra requested a ruling from the Internal Revenue Service to waive the 60-day rollover requirement, allowing her to re-deposit the distributed funds back into her IRA.

The IRS ruled in her favor and granted a period of 60 days from the ruling letter's issuance to redeposit funds into her IRA.

Lesson to Learn:
IRS will generally grant waivers of the 60-day rollover period when the problem is something that is out of the account owner's control. They will consider factors such as illness, mistakes by a custodian, delays in the mail, and fraudulent transactions. This PLR highlights the issue of powers of appointment. While they can be very helpful when an individual is truly unable to take care of their affairs, they can also be used to commit fraud. Consider carefully the powers you give over your finances to others and the circumstances that will allow them to act.


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Thursday's Slott Report Mailbag

Consumers: Send in Your Questions to [email protected]

You recently said that a 401(k) distribution would add to your MAGI (modified adjusted gross income) for the purpose of determining if you are subject to the 3.8% healthcare surtax. What about Roth IRA distributions? Would they also count towards your total MAGI income for surtax purposes?


IRA distributions are exempt from the 3.8% surtax, but taxable distributions from IRAs can push income over the threshold amount, causing other investment income to be subject to the surtax. Because Roth IRA distributions are generally tax-free, they don’t count towards your total MAGI.