No matter whether you roll over your payment or not, you will be subject to taxes (except for qualified Roth distributions and amounts already taxed), and you may also have to pay additional taxes unless you qualify for one of a few exceptions.
Thankfully, the IRS has developed a new self-certification mechanism to make claiming to qualify for a waiver easier.
More information on who is eligible for the new process
and how it works may be found here.
New Self-Certification Procedure
Taxpayers who miss the
60-day deadline for tax-free IRA rollovers can use the new self-certification
method provided they meet at least one of the following 11 criteria:
1-The financial
institution that made the distribution or received the contribution made a
mistake.
2-You misplaced and
never cashed the distribution check.
3-You deposited and
held the dividend in an account that you mistook for a qualified retirement
plan.
4-The taxpayer’s
principal residence was severely damaged
5-A member of your
family died.
6-The taxpayer or a
member of the taxpayer’s family was seriously ill
7-The taxpayer was
incarcerated
8-Restrictions were
imposed on you by a foreign country
9-The post office made
an error
10-The distribution
was made as a result of a levy under Internal Revenue Code Section 6331, and
the levy revenues were returned to you.
11-Despite the
taxpayer's reasonable efforts to obtain the information, the party making the
distribution delayed providing the information that the receiving plan or IRA
required to complete the rollover.
If you meet one (or
more) of these criteria, you can request a waiver of the 60-day rollover
requirement by submitting a written self-certification document to the
retirement plan administrator, IRA custodian, or trustee.
A trustee or custodian of your IRA may rely on self-certification if they believe you have met the 60-day rollover requirements without actual knowledge of the contrary.
Contributions
can be accepted as tax-free rollover contributions if the plan administrator or
IRA trustee meets the requirements. On August 24, 2016, we implemented the new
self-certification process.
Conditions for Self-Certification
The person must fill
out the Model Letter in the appendix to Revenue Procedure 2016-47
"word-for-word or by using a letter that is substantially comparable in
all material respects" and deliver it to the plan administrator or the IRS
in order to self-certify that they qualify for a waiver.
receiving financial
institutions for the late donation rollover. (View the sample letter at the
bottom of
this piece.) If all of
the following conditions are satisfied, the person will be qualified for a
waiver:
1-The rollover
contribution meets all other prerequisites for a legitimate rollover (excluding
the 60-day rollover requirement).
2-In the case of a
challenge, the person may demonstrate that one or more of the eleven (11)
factors from the Model Letter in Rev. Proc. 2016-47 prohibited them from
completing a rollover within the 60-day window.
3-The distribution
came from the individual’s IRA or retirement plan.
4-The person's request
for a waiver has never been turned down by the IRS before.
5-As soon as it is
practical after the reason or reasons for the delay no longer prevent the
individual from making the contribution, the rollover contribution is made to
the plan or IRA (completing the rollover within 30 days satisfies this
requirement).
6- The representations
made by the individual in the Model Letter are true.
Self-certification is
simpler than getting a private letter decision for a waiver since the taxpayer
does not need to submit a request to the IRS, pay an IRS fee, or wait to make
the late rollover contribution until they have received a letter ruling from
the IRS.
The IRS will not automatically waive the 60-day rollover requirement simply because a completed Model Letter (or similar letter) is sent to a plan administrator or financial institution.
A copy of the certification should be kept by the taxpayer in case
it is needed during an audit. The taxpayer can be subject to taxes and
penalties if the IRS subsequently determines after reviewing the individual's
income tax return that they do not meet the requirements for a waiver.
For IRA owners who had
a genuine reason for missing the 60-day window for tax-free rollovers, the new
self-certification process is welcome news. Consult your tax adviser if you're
unclear of your eligibility for the new IRS method or if you need assistance
writing a self-certification letter.
A plan administrator
or IRA trustee may rely on a taxpayer's self-certification to determine whether
the taxpayer has met the requirements for a waiver of the 60-day rollover
requirement for the purposes of receiving and reporting a rollover contribution
into a plan or IRA.
However, a plan administrator or an IRA
trustee may not rely on the self-certification for any other purposes or if the
administrator has actual knowledge that the information in the
self-certification is not true.
Currently, the IRS has
not elaborated on what constitutes “actual knowledge” that the self-certification
is not true, or how a plan administrator would obtain or rely on such
information.
It could be necessary
to adopt a fresh administrative procedure or have plan administrators keep an
eye on things.