The Internal Revenue Service made life a little easier for investors, including Self-Directed IRA owners, who for whatever reason missed the 60-day deadline to complete a rollover from an IRA or Self-Directed IRA account.
In the recently released Revenue Procedure 2016-47, the IRS announced some new and more lenient rules that allow investors to complete a late 60-day IRA or Self-Directed IRA rollover via a self-certification procedure.
Here’s how it works:
In general, IRA rollovers, or rollovers from any other tax-deferred retirement account must be complete – that is, actually deposited to another tax-deferred retirement account such as a Self-Directed IRA – within 60 days. Failure to abide by the 60 day deadline may result in the entire late rollover amount being deemed a distribution by the IRS. That would make the entire late balance taxable. What’s more, unless the withdraw qualified for hardship provisions, you would incur another 10 percent tax on the tardy amount if you are under age 59 ½ (In the case of traditional or self-directed traditional IRAs).
Yes, occasionally investors could get it resolved by throwing themselves at the mercy of the IRS. Many accountants in this field became old hands at writing a letter to the IRS and obtaining a private letter ruling waiving the taxes and penalties, and allowing the rollover to go through.
But that method is at once unreliable and prohibitively expensive: The Internal Revenue Service now charges private letter ruling fees as high as $10,000 to consider a late rollover request. Plus, CPAs and enrolled agents, of course, charged fees of their own.
The Self-Certification process
Under the new rules, investors who run afoul of the 60 day rollover deadline, including Self-Directed IRA owners, don’t have to go through the prohibitively expensive private letter ruling process to get some relief.
Instead, IRA investors can simply self-certify that they are entitled to a waiver, provided the reason for the missed deadline is among a list of pre-approved reasons, the investor has not been previously denied a waiver by the IRS for the transaction in question, and the funds are deposited in a retirement account as soon as practicable.
The IRS specifies 11 circumstances that qualify for a late rollover:
- Financial institution error
- Postal error
- Losing the check (and therefore not cashing it)
- Depositing and keeping the distribution in an account mistakenly thought to be a retirement account
- Miscommunication between the distributing company and receiving company (despite reasonable efforts)
- Severe damage or destruction of principal residence
- Serious illness
- Death of a family member
- Foreign government interference in the transaction
- IRS levies where the cash has been returned to the taxpayer.
Additionally, a 30 day ‘safe harbor’ applies: If you can get the money deposited within a 30 day window after the 60 day rollover, the IRS will deem the transaction occurred as soon as practicable under this safe harbor provision. If you miss the deadline by more than this amount.
For more information on how this works, and how it may apply to Self-Directed IRAs or other self-directed retirement accounts, call American IRA, LLC at 866-7500-IRA(472). With offices in Asheville and Charlotte, North Carolina, American IRA, LLC is among the leading experts in the country when it comes to administering self-directed retirement accounts. We work with investors in all 50 states.
Alternatively, visit our website at www.americanira.com and peruse our vast library of educational and informative materials on the advantages of declaring independence from Wall Street and taking more direct control of your IRA assets.
We look forward to working with you.