On Wednesday, August 24, 2016, the IRS released Revenue Procedure 2016-47. This procedure allows you to complete a late 60-day rollover of retirement funds including solo 401k plan and IRA funds using a self-certification.
A 60-day rollover is when an IRA or plan including a solo 401k plan sends a check payable to you. That check can then be cashed and used for anything that you like. Once you receive the check, you have 60 days to roll the funds over to another retirement account including a self-directed solo 401k. This makes the distribution a tax-free event.
Before this new guidance, the only way to complete a late 60-day rollover was to obtain a successful private letter ruling (PLR) request from the IRS which was expensive and took a long time. However, this new IRS Revenue procedure generally allows you to fix the problem without having to get a private letter ruling that easily costs $10,000. You can now self-certify that you qualify for a waiver of the 60-day rollover period. The IRS has even provided a form letter for you to use as part of the self-certification process.
The following three conditions must be met for self-certification:
- There can be no prior denial by the IRS for a waiver.
- The reason for the late rollover must be one of 11 reasons listed in the form letter.
- The funds must be redeposited in an IRA account as soon as practicable “after the reason or reasons no longer prevent the taxpayer from making the contribution.” There is a 30-day safe harbor window to meet the “as soon as practicable” guideline.
In order to self-certify a late 60-day rollover, your delay must fall under one of the following:
- Financial institution made an error.
- You misplaced your rollover check, and it was never cashed.
- You deposited your distribution into an account you thought was a retirement account and it remained there until you completed your rollover.
- Your principal residence was severely damaged.
- There was a death in your family.
- You or one of your family members was seriously ill.
- You were incarcerated.
- Restrictions were imposed upon you by a foreign country.
- A postal error occurred.
- Your distribution was made on account of an IRS levy, and the proceeds of the levy have been returned.
- Despite reasonable efforts to obtain information, the distributing company did not provide information required by the receiving company.
Compliance Note 1
It’s important to note that the self-certification is not a waiver by IRS. It allows you to report a contribution as a valid rollover, but the IRS can later audit your tax return to determine if your 60-day rollover delay falls under one of the 11 situations listed above.
Compliance Note 2
This Rev. Proc. has no impact on the one rollover per 12-month period—you can only do one per 12-month period. The new relief provided in Revenue Procedure 2016-47 doesn’t change this in any way.
Compliance Note 3
The best way not to have to deal with 60-day rollover window and the once-per-year rollover rule is to use direct rollovers and trustee-to-trustee transfers when moving retirement funds instead of using 60-day rollovers. You can move retirement funds an unlimited number of times this way with no time limit on the transaction.
Lastly, CLICK HERE to read our Q and A on the Late 60-Day Rollover Revenue Procedure.