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What Happens If You Don't Roll Over 401k Within 60 Days

 




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 institution 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.