Self-Certification Procedure for Retirement Plan Rollovers

In an apparent effort to make it easier for retirement savers who face real hardships to manage their account rollovers, the IRS announced on August 24 a new self-certification procedure designed to help recipients of retirement plan distributions who miss the 60-day time limit for rolling these amounts into another qualified retirement plan or IRA avoid penalties by attributing their failure to one of a list of reasons.

Under current law, taxpayers under age 59½ who withdraw funds from an IRA, 401(k), or similar tax-advantaged retirement plan are required to transfer the funds to another qualified retirement account within 60 days. Taxpayers who fail to meet this rollover deadline generally owe both taxes and a 10% penalty on the early withdrawal amount.

The IRS can waive the 60-day rule in cases in which the account owner can prove that he or she missed rollover deadline due to an event out of the account owner’s control, such as a death in the family or a disaster. But under previous rules the taxpayer had to request a private letter ruling from the IRS to avoid the penalty and wait for IRS determination. That requirement is especially onerous given that the IRS’ fee for processing such a private letter request is $10,000.

But in Revenue Procedure 2016-47 the IRS said it would allow taxpayers who miss the rollover deadline can qualify for a waiver of the 60-day time limit and avoid possible early distribution taxes by self-certifying that the reason for the oversight is excusable. In addition, the revenue procedure includes a sample self-certification letter that a taxpayer can use to notify the administrator or trustee of the retirement plan or IRA receiving the rollover that they qualify for the waiver, although other forms can also be used.

A taxpayer who missed the 60-day window will now ordinarily qualify for a waiver if one or more of 11 situations apply to his or her case. The reasons the IRS has said provide legitimate excuses for missing the 60-day deadline are as follows:
1) The financial institution made an error in receiving a contribution or distributing assets relating to a contribution;
2) The distribution was made as a check and was lost and not cashed;
3) The distribution was inadvertently deposited into and left in an account the taxpayer believed was an eligible retirement plan, but was not;
4) The taxpayer’s residence suffered severe damage;
5) There was a death in the taxpayer’s family;
6) The taxpayer or a member of his or her family was seriously ill;
7) The taxpayer was incarcerated;
8) A foreign country imposed restrictions that delayed the deposit of the taxpayer’s plan assets;
9) There was a delay caused by the postal service;
10) The distribution was levied by the IRS and returned to the taxpayer after the rollover deadline; and
11) The distribution of plan assets and the rollover were delayed because of the failure of the distributing party to provide the information needed by the recipient plan or IRA, despite the taxpayer having made reasonable efforts to obtain the information.

Administrators or trustees are expected to honor the self-certification unless they have knowledge that the facts laid out in the certification are not accurate or are untrue. Moreover, even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination.

However, taxpayers who want to rely upon the certification are advised by the IRS to deposit their distributed plan assets into an eligible retirement plan or IRA “as soon as practicable”—generally, within a 30-day safe harbor—after the reason given no longer prevents them from making the contribution.

The IRS also emphasized that it encourages eligible taxpayers wishing to transfer retirement plan or IRA distributions to another retirement plan or IRA to avoid such discrepancies by requesting that the administrator or trustee make a direct trustee-to-trustee transfer, rather than managing the rollover themselves. The agency further noted that a plan owner who had received a prior IRS determination that it would not waive the 60-day time limit for a particular distribution event is not eligible for this self-certification procedure.