A recent court case the Nancy Burack v. Commissioner; T.C. Memo. 2019-83; No. 11819-17; July 8, 2019 serves as a good reminder that the 60-day rollover rules can be complicated. Essentially, the IRS first ruled the IRA holder’s (Nancy Burack) IRA rollover amount of over $500,000 was subject to taxes because it was not deposited into the same IRA or another IRA within 60 days even though she deposited the rollover check with the IRA financial institution within 58 days so 2 (two) days before the expiration of the 60-day window, but the bank did not deposit the IRA check until the 62nd day. However, Nancy appealed to the Tax Court and won.
60-Day Rollover Items to Consider
- If the 60-day IRA rollover deadline is missed, consider applying for a hardship waiver, PLR or self-certification.
- 60 days may seem like a long time but it is not; as a result, the deadline can easily be missed and result in a large tax bill.
- The 60-day rollover rules apply to all IRAs (e.g., SIMPLE, SEP, Traditional and Roth) and only one rollover is allowed per year. The 12-month period is not a calendar year, and it starts when you take constructive receipt of the IRA funds (i.e., when you receive the check in the mail).
- The once-per-year rule applies to traditional IRA-to-traditional IRA rollovers and Roth IRA-to-Roth IRA rollovers.
- The once-per-year rules does not apply to company plan-to-IRA rollovers (e.g., solo 401k to IRA), IRA-to-solo 401k plan or other 401k plans.
- The once-per-year rules does not apply to traditional IRA-to-Roth IRA conversions.
- 60-day rollover distributions from a solo 401k plans are subject to the mandatory 20% federal tax withholding even if the funds are rolled over to an IRA or to a 401k plan within 60 days. Therefore, the solo 401k or 401k participant should consider first processing a direct rollover to an IRA since the 20% upfront tax withholding does not apply to direct rollovers from 401k plans including solo 401k plans.