How to Get a Waiver of the 60-Day Deadline for Your IRA Rollover

If you take a distribution from your IRA, you must include the amount in your income unless an exception applies. One of the exceptions is a distribution that is rolled over within 60 days of receipt. If you miss this 60-day deadline, you may still roll over the amount if you qualify for at least one of the three waiver provisions.

IRA Rollovers Vs. Transfers

There are two ways to move assets between IRAs: transfers and rollovers.

Transfers are nonreportable and not subject to the 60-day deadline. An example of a transfer is a movement of assets directly between two traditional IRAs, where a distribution does not occur, and the delivering custodian makes the assets payable to the receiving IRA custodian for the benefit of (FBO) the IRA.

Payee Example: IRA FBO John Brown, ABC Company as custodian.

A rollover is a reportable transaction involving a distribution reported on IRS Form 1099-R and a rollover reported on IRS Form 5498. Rollovers must be reported on the IRA owner’s tax return.

Only eligible amounts may be rolled over. Examples of amounts not eligible for rollover include required minimum distributions and rollovers that miss the 60-day deadline and do not qualify for a waiver.

A taxpayer who misses the 60-day deadline may still roll over a distribution if they qualify for a waiver. The following are the options for a waiver of the 60-day deadline.

Option 1: Automatic Waiver

You get an automatic waiver of the 60-day deadline if you follow the instructions of your financial institution and the deadline was missed because of a mistake that they made.

For example: Assume that you complete your IRA custodian’s rollover contribution form or instructions for rollover and submit your check to them. However, they deposit the amount to your regular brokerage account instead of your IRA.

In such a case, your 60-day period is extended to one year, and you must follow up to ensure the amount is deposited into your IRA before the expiration of the year.

Option 2: Self-Certification

The IRS offers more than 10 options to self-certify that you qualify for a waiver and thus avoid requesting a private letter ruling (the third option below). These options are listed on Page 2 of Revenue Procedure 2020-46. You must ensure that the following requirements have been met when using this self-certification option:

1. Do not use it if you have already requested a private letter ruling and the IRS denied your request.
2. You must make the rollover “as soon as practicable.” According to the IRS, this means that once the reason for missing the deadline no longer prevents you from making the rollover, you should complete the rollover within 30 days.
3. Ensure that your rollover contribution is accompanied by a letter of certification to your IRA custodian explaining why you qualify to use this method. The IRS includes a sample certification letter in Revenue Procedure 2020-46 (see Page 6).

Caution: If the IRS later determines any unmet requirements, you might be subject to income tax on the amount, plus IRS-assessed excise tax, interest, and penalties. To help ensure you meet the requirements, have your CPA review your self-certification package before sending it to your IRA custodian.

Generally, a rollover contribution to an IRA is reported in Box 2 of Form 5498. However, a late rollover done under the self-certification method is reported in Box 13.

Be sure to provide a copy of your 1099-R and Form 5498 to your tax preparer.

Option 3: Private Letter Ruling Request

Under the private letter ruling request method, a petition is filed with the IRS for a waiver of the 60-day deadline. This method should be used if it is practical. For example, filing a PLR request for a rollover of $5,000 might not be practical because the IRS charges a fee of $12,500 regardless of whether its ruling is favorable. A professional fee would also apply if you use the services of your CPA or other professional to file the request.

Consideration should also be given to the likelihood of the IRS issuing a favorable request. According to the guidelines, the IRS will issue a favorable ruling “in cases where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster or other events beyond the reasonable control of the taxpayer.”

The IRS will likely issue a favorable ruling if the deadline is missed for reasons that include those allowed under the self-certification provision and other similar circumstances. If you missed the deadline for any of those reasons but are well behind the safe harbor 30-day period, a PLR could get you the waiver you need.

On the other hand, if the funds were in use when the rollover should have been completed, the IRS would likely issue an unfavorable ruling denying your request. For example, consider the taxpayer who had the funds tied up in the purchase of a home (see PLR 202033008). The IRS denied the request for a waiver of the 60-day deadline request because the taxpayer withdrew the amount “for use as a short-term, interest-free loan to purchase a new home.” The request would have likely been approved if the amount had been deposited to a checking or savings account and remained unused or uninvested.

Best Option: Avoid Using the 60-Day Rollover Method

The rules discussed in this article are only a few that apply to the movement of assets between retirement accounts. To help ensure that rules are followed, retirement account holders should consult with their tax advisor before initiating withdrawals from their retirement accounts, especially those intended for rollover.

The transfer method for IRAs is the safer way to move assets between IRAs because it is not subject to restrictions that apply to rollovers.

Understandably, some individuals find they need to use the funds on a temporary basis and return them to their IRA. In such cases, care should be taken to ensure that the 60-day deadline is not missed—and if it is, advisors should check to see if the individual qualifies for a waiver.