There is good news for everyone with a retirement
account. The IRS recently released their Revenue Procedure
2016-47 which provides a new and easier way for you to
complete a late 60-day rollover of retirement funds using a self-certification
procedure. Here are 10 things you should know about this new procedure that
just might save
your retirement savings.
1. The new self-certification procedure
is available for missed 60-day rollover deadlines for both IRAs, including Roth
IRAs, SEP IRAs and SIMPLE IRAs, and company plans.
2. This new procedure can provide an
immediate and cost-free fix for a missed rollover deadline potentially saving
you from taxes, penalties, and the loss of your retirement savings.
3. To qualify, you cannot have been
previously denied a waiver by the IRS and the reason for your late rollover
must be one in a list of eleven specific reasons provide by the IRS. Among them
are common reasons for late rollovers, including serious illness and mistakes
by the financial institution.
4. There is no “miscellaneous” or
“other” category when it comes to the self-certification process. If you are
late for a reason that is not one of the eleven, then presumably, you would
still need to go through the process of filing a private letter ruling (PLR) to
seek relief.
5. You must redeposit the funds in a
retirement account as soon as possible after the reason or reasons no longer
prevent you from making the contribution. There is a 30-day safe harbor window
to meet this requirement.
6. You must make a written
certification to a plan administrator or an IRA custodian that a contribution
satisfies the conditions for a waiver. The IRS has even provided a model letter
that should be used for this written certification requirement. This can be
found in the Appendix to Rev. Proc 2016-47.
7. Self-certification is not a waiver
by IRS. You are not necessarily completely off the hook. You are allowed to
report a contribution as a valid rollover on your tax return, but the IRS can
still later audit your return and determine that a waiver was not appropriate.
8. Late rollovers through
self-certification will be on the IRS’ radar. Reporting from the IRA custodian
will tip off the IRS that a late rollover has occurred.
9. If you violate another rollover rule
other than missing the deadline, you
are out of luck. The self-certification process will not help
you. For example, if you do more than one IRA-to-IRA or Roth IRA-to-Roth IRA
60-day rollover in a 12-month period, this mistake cannot be fixed with the new
self-certification procedure. Really, when you make that mistake, nothing good happens.
While the new procedure is helpful,
your best bet to avoid missing the deadline as well as other rollover errors is
to stick with trustee-to-trustee transfers and direct rollovers when you are
looking to move your retirement funds.
