Plan Administrators May Accept Self-Certification Waivers of 60-Day Rollover Requirement
The IRS has issued guidance on the waiver of the 60-day period for rollovers to an IRA or qualified plan. Under the new guidance, effective August 24, 2016, a participant may self-certify that the conditions for a waiver are met, and the plan administrators and IRA trustees may rely on the self-certification in accepting and reporting receipt of a rollover. See Revenue Procedure 2016-47 for complete details. In addition, the IRS issued answers to frequently asked questions about the waiver at this link.
Action Needed Now: Administrators of plans that accept rollovers may want to review their administrative procedures to address how they will treat a rollover accompanied by a self-certification. In addition, plan administrators may want to review language in their summary plan descriptions and other participant communications to inform participants of the availability of self-certification for distributions that they receive from the plan that are not contributed to an eligible retirement plan within the 60-day period.
Code §§ 402(c)(3) and 408(d)(3) provide that any amount distributed from a qualified plan under § 401(a) or an individual retirement plan under § 408(a) or § 408(b) is excluded from income if it is transferred (i.e., "rolled over") to an eligible retirement plan1 no later than the 60th day following the day of receipt. A similar rule applies to § 403(a) annuity plans, § 403(b) tax sheltered annuities, and § 457 eligible governmental plans. Generally, a plan administrator or IRA trustee that accepts a rollover contribution beyond the 60-day period (without a waiver or ruling from the IRS) risks loss of plan qualification.
Prior to Rev. Proc. 2016-47, a taxpayer (e.g., a participant) that missed the 60-day period had to use the letter-ruling procedure under Rev. Proc. 2003-16 to apply to the IRS for an individual waiver of the 60-day rollover requirement.2 The letter-ruling procedure required that a user fee be paid to the IRS before the request would be considered. Starting in 2016, the required user fee was increased to $10,000 and was not refundable if the request was considered and denied.
Cheiron Observation: The $10,000 user fee effectively made it uneconomical for taxpayers with relatively small amounts to request a waiver.
SELF-CERTIFICATION UNDER REV. PROC. 2016-47
Rev. Proc. 2016-47 permits a taxpayer to make a self-certification to a plan administrator or an IRA trustee3 using the procedure's model letter word for word, or a substantially similar letter. The taxpayer should keep a copy of the certification in his or her files and make it available if requested on an audit. The taxpayer may report the contribution as a valid rollover unless later informed otherwise by the IRS following examination.
Conditions for Self-Certification
There are three conditions for self-certification:
- No prior denial by the IRS. The IRS must not have previously denied a waiver request with respect to a rollover of all or part of the distribution to which the contribution relates.
- Reason for missing 60-day deadline. The taxpayer's failure to meet the 60-day deadline to complete the rollover is due to one or more of the following reasons:
- an error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
- the distribution, having been made in the form of a check, was misplaced and never cashed;
- the distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;
- the taxpayer's principal residence was severely damaged;
- a member of the taxpayer's family died;
- the taxpayer or a member of the taxpayer's family was seriously ill;
- the taxpayer was incarcerated;
- restrictions were imposed by a foreign country;
- a postal error occurred;
- the distribution was made on account of a levy under § 6331 and the proceeds of the levy have been returned to the taxpayer; or
- the party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer's reasonable efforts to obtain the information.
- Contribution as soon as practicable; 30-day safe harbor. The contribution is made to the plan or IRA as soon as practicable after the reason or reasons listed in the certification no longer prevent the taxpayer from making the contribution. This requirement is deemed satisfied if the contribution is made within 30 days after the reason or reasons no longer prevent the contribution.
Except in instances where the plan administrator or IRA trustee has actual knowledge that is contrary to the taxpayer's self-certification, the plan administrator or IRA trustee may rely on the self-certification in determining whether the taxpayer has satisfied the conditions for waiver of the 60-day rollover requirement.
The self-certification permitting waiver of the 60-day rollover period provides practical relief for taxpayers who have legitimate reasons for failing to complete rollovers within the 60-day period.
Cheiron consultants can help you modify your administrative procedures and plan documents to implement this self-certification.
Cheiron is an actuarial consulting firm that provides actuarial and consulting advice. However, we are neither attorneys nor accountants. Accordingly, we do not provide legal services or tax advice.
1 An eligible retirement plan, under Code § 402(c)(8)(B), means a qualified plan or an individual retirement plan.
2 The Secretary of the Treasury can waive the 60-day rollover requirement in the event of disasters, terroristic or military action, or other events beyond the reasonable control of the individual; and Rev. Proc. 2003-16 provides for automatic approval for a waiver of the requirement due to an error on the part of a financial institution.
3 The IRS intends to modify the instructions to Form 5498 to require that an IRA trustee that accepts a rollover contribution after the 60-day deadline report that the contribution was accepted after the 60-day deadline.