Don't Just "Forget" About the 60-Day IRA Rollover Window ... It Will Cost You

A taxpayer learned a costly lesson recently when he forgot to complete an IRA rollover within the 60-day time fame. He asked the IRS for more time to do the rollover, but they turned him down. As a result, his IRA distribution couldn’t be rolled over tax-free so that meant his IRA distribution was taxable.

A person we’ll call “Tom” received a distribution from his IRA in early March 2013. He later deposited that amount into his checking account about eleven days later. In mid May 2013, he tried to roll over that amount into another IRA, but he was told that the 60-day period had expired four days ago.

He realized that if he couldn’t do the rollover, his IRA distribution would be taxable. Not wanting to pay the taxes, he applied to the IRS for a private letter ruling (PLR), asking the IRS to give him more time to complete the rollover. He told IRS he was aware of the 60-day limit, but also admitted that he forgot to timely do the rollover and let the 60-day clock expire.

The IRS has the authority to waive the 60-day period and give taxpayers more time to complete a rollover in certain circumstances. Taxpayers must request a PLR from IRS asking for a waiver of the 60-day period due to reasonable error.

Generally, the IRS gives taxpayers more time to do a rollover when there was some casualty, disaster, or some other event beyond the reasonable control of the individual that prevented him from timely doing the rollover. The IRS looks at all the facts and circumstances such as financial institution or advisor error, and other outside factors such as a death in the account owner’s family, health problems, disability, and other factors beyond the person’s reasonable control.

In this case, Tom’s only excuse was that he simply forgot to do the rollover within 60 days. He didn’t claim that he was suffering from mental health issues or that some stressful event happened to him during those 60 days; he simply said he forgot. So, because he couldn’t come up with any extenuating circumstances that prevented him from doing the rollover, the IRS had no choice but to deny his request for more time to complete the rollover. (PLR 201428012, July 11, 2014).

Simply forgetting to do the rollover is not a good enough reason for the IRS to give you more time to do it.

- By Joe Cicchinelli and Jared Trexler

Posted in: 60-day IRA rollover,60-day IRA rollover window,Ed Slott,ed slott ira,ed slott retirement,financial,financial advisor,IRAs,IRS,joe cicchinelli,private letter ruling,Tax Planning