Ruling to Remember: 60-Day IRA Rollover Requirement

In this month's Ruling to Remember, we take a look at Private Letter Ruling 201339002, submitted in late September 2012 as a waiver request to the 60-day IRA rollover requirement.

Taxpayer A, who we will call Joan, received a distribution from three separate IRAs then decided to shop around at different financial institutions for more favorable interest rates. She finally settled on a new bank, but was informed that her rollover contribution could NOT be accepted because it was past the 60-day IRA rollover window.

IRS rules that the information presented and the documentation presented by Joan indicated that she withdrew an IRA distribution with intent to redeposit the funds at a later time into another IRA that would yield a better rate of return. However, she did NOT demonstrate that her former bank had a duty to inform her of her 60-day IRA rollover requirement.

Her waiver was denied.

What You Should Learn:
A financial institution does NOT have an obligation to give advice (i.e. you better roll over the funds you are taking away from us to another financial institution within 60 days). If they are silent, they have no liability. They only have liability when they say things in error. YOYO, as Ed Slott says - you are own your own.

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Roth IRA 60-Day Rollover Rules

Many times we get the question “Do the 60-day rollover rules apply to Roth IRAs?” The answer is, yes.

When a distribution from a Roth IRA is made payable to the Roth account owner, the owner has 60 days from the date he receives the funds to roll the funds over to another Roth IRA. This type of rollover can only be done once every 12 months. No other rollovers can be done out of either the distributing Roth IRA or the
receiving Roth IRA. Funds can still be rolled into those accounts though.

But, funds are not locked in those accounts for a year. Even though you cannot do another rollover you can still do a direct transfer of any of the funds in either Roth account to another Roth IRA. A Roth recharacterization can also be done from either account because it must be done as a direct transfer.

A rollover from a Roth 401(k) (or similar employer Roth plan) does not count. If the check from the employer is made payable to the plan participant, the 60-day rollover period does still apply but there is no once-per-12-month limit.

Funds that are not eligible for rollover, but are nevertheless rolled over, become excess contributions in the receiving account. Excess contributions are subject to a penalty of 6% per year for every year they remain in the account. The penalty is reported on Form 5329, which is filed with the account owner’s federal income tax return. If the form is not filed, the statute of limitations does not start to run on the penalty.

All of the above limits and potential problems can be eliminated by doing direct transfers. Instead of having a check made out to the individual, it should be made out to the receiving institution for benefit of the individual’s Roth IRA account. Then there is no 60 days to worry about, no once-per-year rule, and no worries about excess contributions.

IRS can allow extra time to complete a rollover in limited situations. The catch - the fees you have to pay. The extension can only be granted by requesting a private letter ruling. The IRS fees range from $500 to $3,000 depending on the amount of the rollover. In addition, you have to pay someone to prepare the ruling request. There is no guarantee that IRS will grant any request. If the request is denied, there are no refunds.

- By Beverly DeVeny and Jared Trexler

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Ruling to Remember: Waiver of the 60-Day IRA Rollover Requirement

A taxpayer we will call "Greg" asserted that his failure to accomplish a prompt rollover of his distributed IRA funds within the prescribed 60-day IRA rollover window was due to the medical condition and death of his mother.

The story goes...

Greg received a statement from his company in early December, indicating a retirement plan distribution less federal income tax withholding. Upon receipt of the statement, Greg called his former employer and was informed that a check representing his investment in an employer retirement plan had been mailed to him a few days prior.

Greg maintained that he told his former employer that he had never requested or received the check. Nearly three months later, the former employer re-issued the check and about one month after that, Greg deposited the full amount into his IRA. Greg also asserted that he was the primary caregiver of his mother starting in mid-August (prior to the issued statement) until her death in early April of the following year (after the check issuance was resolved), allowing for a hardship exception to the 60-day IRA rollover window.

He requested a private letter ruling (201330047) with IRS to waive the 60-day IRA rollover requirement with respect to the distribution discussed above.

As it turns out, Greg didn't need the waiver. IRS ruled that documentation shows that the distributed amount was successfully deposited into his IRA within 60 days after the check was actually received. The waiver was denied since there was no need for the waiver.

Notes: The 60-day IRA rollover window begins after the check is RECEIVED, NOT when it is ISSUED. Also, if the check is made out to the new custodian instead of the individual, there is no 60-day rollover period.

- By Beverly DeVeny and Jared Trexler

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