In order for a rollover into a traditional IRA to be tax deferred, the funds must be deposited into the account within 60 days from the date of distribution from the prior retirement account. However, it’s not unusual for taxpayers to create a tax problem by missing the 60-day deadline for an IRA rollover. This typically results in additional taxes due and a 10% penalty if the withdrawal is made before age 59 1/2.

The IRS has recently announced a new procedure to help taxpayers fix the missed deadline in certain circumstances and avoid resulting tax problems. If you make a mistake and don’t complete a timely rollover you may be able to fix the problem by self-certifying that you meet the conditions of the new procedure. The IRS even provides you with a form letter to use for self-certification.

Permissible Reasons for Relief

To qualify for relief, the IRS cannot have previously denied relief to you for that rollover, and you must have missed the 60-day deadline for one of the following 11 reasons:

  • An error was made by a financial institution receiving or making the distribution.
  • You misplaced your rollover check and it was never cashed.
  • You deposited your distribution into an account you thought was a retirement account.
  • Your principal residence was severely damaged.
  • There was a death in the family.
  • You or one of your family members was seriously ill.
  • You were incarcerated.
  • Restrictions were imposed upon you by a foreign country.
  • The post office made an error.
  • Your distribution was made on account of an IRS levy and the proceeds of the levy have been returned.
  • The party making the distribution delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer’s reasonable efforts to obtain it.

The rollover contribution must be made to the plan or IRA as soon as practicable after the reason or reasons for missing the 60-day deadline no longer prevent you from making the contribution. This requirement is deemed to be satisfied if the contribution is made within 30 days after the reason or reasons no longer prevent you from making the contribution.

While the new procedure will help most taxpayers avoid IRS tax problems relating to a missed rollover deadline, its’s important to realize that the self-certification is not a waiver. The IRS can audit your return at a later date within the statute of limitations and claim your self-certification was improper. This could result in you owing additional taxes.

An easy way to avoid this entire issue is to use a direct rollover from trustee-to trustee when moving retirement funds rather than 60-day rollovers.

The tax professionals at East Coast Tax Consulting Group can help with missed rollover deadlines or other tax problems facing taxpayers in Boca Raton and elsewhere in South Florida.