You will be liable for taxes and penalties if you fail to accomplish the deadline for rolling over an IRA distribution to another IRA or other qualified retirement plan. However, you can acquire a hardship waiver form from the IRS, provided you have a justifiable reason but applying for this takes time and it is expensive. Luckily, the IRS recently created a new self-certification procedure that makes it convenient to claim eligibility for the waiver. To learn more about this, here is the information on how it works and who qualifies for the new procedure.
If the taxpayers incidentally miss the 60-day obligatory deadline for tax-free IRA rollovers, the new self-certification procedure can be utilized but should meet at least one of the 11 underlying events.
1. Financial Institution committed an error in receiving the contribution or making the distribution to which the contribution relates.
2. The distribution of checks is misplaced and never liquidated.
3. You deposited and kept the distribution in an account you mistakenly believed was a qualified retirement plan.
4. The principal residence was critically damaged.
5. The demise of a member of your family.
6. Either you or a member of your family was severely ill.
7. You were imprisoned.
8. A foreign country imposed restrictions on you.
9. A postal error appeared.
10. The distribution was created on account of a levy under Internal Revenue Code Section 6331 and the proceeds of the levy have been given back to you.
11. The party creating the distribution to which the rollover relates delayed providing information that the receiving plan or IRA obliged to complete the rollover despite your practical efforts to acquire the information.
You have a higher chance of being eligible for a waiver of the 60-day rollover policy if you qualify for one or more of the conditions above. You just need to fulfill a written self-clarification document and submit it to the IRA custodian or trustee or to the retirement plan administrator.
If they missed actual knowledge to the contrary, the plan administrator or the IRA custodian or trustee can determine whether you met the provisions for a waiver of the 60-days rollover requirement. Once evaluated that you have satisfied the conditions, the plan administrator or the IRA trustee or custodian can recognize your contribution as a tax-free rollover contribution. The new self-certification procedure took effect on August 24, 2016
The self-clarification document should be made with a template from the IRS or you can also use a letter but should be substantially similar. This should disclose that the following conditions have been met.
There should be no record that your waiver has been previously rejected by the IRS with respect to the rollover of all or part of the distribution to which the contribution in question relates.
You missed the 60-day deadline requirement because you are unable to satisfy at least one of the 11 valid reasons implied by the IRS.
Your contributions should be made to the plan or IRA as soon as practicable after the cited conditions no longer hinder you from making the contribution.
Note that the last requirement is deemed satisfied provided you make the contribution in a period of 30 days after the reason no longer prohibits it.
The fact that the IRA Trustee or custodian or the plan administrator receives a rollover contribution after the 60-day deadline, the IRS plans to amend its instructions requiring them to report the contribution that it was already accepted and rolled over after the deadline. So the IRS will be given notice that you have taken benefit of the new self-certification procedure.
Technically, self-certification is not a formal hardship waiver of the 60-day mandatory period. However, both are working effectively assuming you fulfilled all the applicable requirements and you can regard the contributions as a valid rollover unless you hear otherwise from the IRS.
In the event of an audit by the IRS and they discovered that you did not satisfy the requirements for a formal hardship waiver then you will be charged with penalties and you can be evaluated of an income tax deficiency. We suggest that you double-check everything in order to avoid this.
The new self-certification procedure is an advantage for IRA owners especially if they have justifiable excuses for missing the 60-day requirement for tax-free rollovers. I advise you to discuss with your tax advisor regarding your concerns whether you are eligible for the new IRS procedure or need assistance for designing a self-clarification letter.
