What to Do If You Miss the 60-Day Rollover Period

When you receive a distribution from a qualified retirement plan or IRA, you have 60 days from receipt to deposit the funds into another qualified retirement plan or IRA. If you don’t, you will be taxed on the distribution and, if you’re under age 59-1/2, subject to a 10% early distribution penalty unless a penalty exception applies. A well-intentioned individual can easily miss the deadline and would normally trigger tax on the distribution. However, relief is possible because the IRS has discretion to waive the 60-day deadline where it would be against “equity or good conscience” not to do so.

Use automatic relief rules. The IRS will automatically waive the deadline if you meet all of the following conditions:

1. you deposit the rollover funds with a financial institution within the 60-day period,
2. you follow all of the institution’s rollover procedures but the rollover account is not established on time solely because of the institution’s error, and
3. the funds are actually deposited in a valid rollover account within one year of the start of the 60-day period.

Ask the IRS for more time. In other hardship situations not eligible for the automatic waiver, you must apply to the IRS for a waiver by requesting a private letter ruling and paying the required user fee. You must show that failure to meet the 60-day deadline was beyond your reasonable control, such as where you

were disabled, hospitalized, or there was a natural disaster, postal error, or error by the financial institution other than one qualifying for an automatic waiver. The IRS will take into account the length of the delay and whether you cashed a distribution paid to you by check.

The IRS is very liberal in granting relief, provided you can show that the cause of missing the deadline was something beyond your control and you didn’t take advantage of the situation. Examples where relief was granted:

• An investment advisor stole the rollover funds and the individual didn’t learn about this until after the 60-day deadline.
• A financial institution mistakenly put the rollover into a taxable account.
• An individual failed to timely complete the rollover due to a serious medical condition that required hospitalization.
• An individual failed to timely complete the rollover because he was caring for his terminally ill spouse.

The IRS has denied relief in these situations:

• The individual used the funds as a short-term loan with the intention of replacing the funds on time but couldn’t.
• The individual used the funds to pay off her mortgage and was under the misunderstanding that the 60 days was based on business days rather than on calendar days.

Conclusion

The best way to avoid the rollover deadline is to not receive a distribution, but instead authorize the trustee or custodian of a qualified retirement plan or IRA to make a direct transfer of funds to the trustee/custodian of another such plan or IRA. But if you receive a distribution, pay attention to the calendar so you won’t need to seek relief.