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A Look at the New 60-Day Rollover Rules

A reader writes in, asking:

“I heard from my financial advisor that the IRS is eliminating the 60-day requirement for rollovers. Is that correct?”

No, that’s not correct. The 60-day requirement is not going anywhere. It’s in the actual Internal Revenue Code itself, and the IRS doesn’t have the power to rewrite our laws.

Let’s start with a bit of background for readers who aren’t familiar with the 60-day rule. When you do a rollover from one retirement account to another (e.g. from a 401(k) to an IRA), you have two options:

  1. You can do a direct transfer in which the money is sent directly from the first custodian to the second custodian, or
  2. You can do an indirect transfer in which the money is sent to you and you then have 60 days (from the date on which you receive the distribution) to get it deposited into the appropriate account with the second custodian.

If you do an indirect transfer, but you fail to get the money deposited within the 60-day window, you have a problem. Specifically, you won’t be able to roll the money into a retirement account, so it will simply count as a distribution (which will usually be taxable, sometimes subject to the 10% penalty, and so on).

The Code does provide the IRS with the ability to waive the 60-day requirement in cases in which “the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.” For example, waivers have been granted in cases in which the taxpayer becomes seriously ill during that 60-day window.

Historically, however, in order to get such a waiver, you would (in most cases) have had to follow the formal process for applying to the IRS for a private letter ruling. And you would then have to wait for the results of such ruling. (And in the meantime, no financial institution would have been able to accept the money as a rollover contribution, since it was outside of the 60-day window.)

The New Rules

Now, however, the IRS has announced (in Revenue Procedure 2016-47) that you will essentially be given the benefit of the doubt (that a waiver will be granted) if you self-certify that you missed the 60-day window for one of several specific reasons listed (e.g., death in the family, serious illness, error on the part of one of the financial institutions). The Revenue Procedure even provides an example letter than you can use to make such a self-certification.

The result would be that:

  • You can file your taxes in keeping with the assumption that the 60-day requirement will be waived (rather than having to report a taxable distribution), and
  • Financial institutions will be able to accept the money as a rollover.

Of note, making such a self-certification does not guarantee the IRS will ultimately grant a waiver. The IRS can still examine your self-certification, and if they determine that the requirements for a waiver were not in fact met, you will not be granted one.

One final point: Despite the above changes, the easiest and safest method for getting money from one retirement account to another is still to opt for a direct transfer.

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