We are constantly saying that you should not do a 60-day rollover unless it is absolutely necessary. Here is a perfect example of why that's the case. The following story comes from a recent private letter ruling issued by IRS. It details some of the many ways a 60-day rollover can go horribly wrong.
This is the story of “Gary and Nancy.” In 2008, Gary took a distribution from an IRA intending to roll it over to another IRA. He opened an account at a different bank and instructed them to put his funds in an IRA. Thirteen months later, in 2009, Gary discovers that the funds did not go into an IRA account. He begins to try and resolve the issue with the bank. Coincidentally, another thirteen months later while the IRA problem is still unresolved, Gary died. We are now into 2010. Matters were complicated by a change in banks. The bank where Gary had his account was acquired by another bank and his account was converted to an account at the new bank.
Another thirteen months later, in early 2012, the bank acknowledged - in writing - that the mistake was theirs. The funds were transferred to an IRA in Nancy’s name, and she then moved them to a new bank and placed them in an IRA in Gary’s name. Neither Gary nor Nancy ever used any of the IRA funds.
Nancy now goes to IRS and requests a private letter ruling (PLR) - we are still in 2012. IRS requested more information from Nancy five times in 2013. Finally, in 2014, IRS ruled in Nancy’s favor.
This rollover started in 2008. It was finalized six years later. The IRS fee alone for this type of ruling is capped at $3,000. Generally you also have to pay a professional to prepare the PLR. Given the amount of times IRS requested more information from Nancy, the professional might have charged her another $10,000. The cost in time and money to complete this rollover -not to mention the aggravation and stress on Gary and Nancy - is something that we want you to avoid. DON’T DO 60-DAY ROLLOVERS. Even if the bank told you it would take 30 days for them to process a direct transfer, that still would be more than five years faster than it took to complete this rollover.
- By Beverly DeVeny and Jared Trexler
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