Is the IRS getting more liberal with 60-day rollover mistakes? [Tip: blame your spouse!]

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In a Private Letter Ruling (PLR) dated 3/5/18 (released by IRS 5/31/18; see full document here: PLR 201822033), the IRS waived the 60-day rollover requirement for the movement of retirement funds between a qualified employer retirement plan and an IRA (i.e., the individual involved took a distribution from her qualified plan but then mistakenly didn’t roll some or all of the funds to an IRA until more than 60 days had passed).  Although these types of waivers have become fairly common over the years (i.e., lots of people make rollover mistakes!), it appears that the IRS is getting more liberal with situations when the waivers will be granted.  In this case, the individual argued to the IRS that she didn’t roll the funds over to her IRA because she mistakenly relied on her spouse’s advice.  Although I definitely wouldn’t recommend getting too comfortable with the idea that the IRS will be so understanding in the future, the IRS does not appear to be somewhat flexible on these 60-day rollover mistake situations.

If you are interested, below is a more extensive outline of the 60-day rollover rule and how a waiver can be required from the IRS…

60-Day Rollover Rule.  Under Code Sec. 402(c)(1), there’s no current tax on an eligible rollover distribution from a qualified retirement plan that’s rolled over into an eligible retirement plan within 60 days. An eligible rollover distribution is any distribution to an employee of all or any portion of the balance to the credit of an employee in a qualified trust except for: certain substantially equal periodic payments; required minimum distributions under Code Sec. 401(a)(9); and hardship distributions. (Code Sec. 402(c)(4)) An eligible retirement plan includes an individual retirement account (IRA). (Code Sec. 402(c)(8)(B))

IRS may waive the 60-day rule if an individual suffers a casualty, disaster, or other event beyond his or her reasonable control, and not waiving the 60-day rule would be against equity or good conscience (i.e., hardship waiver). (Code Sec. 402(c)(3)(B))

IRS Revenue Procedure 2003-16 establishes a letter-ruling procedure for taxpayers to apply for a waiver of the 60-day rollover requirement (i.e., by submitting a PLR request and paying a user fee) and sets out several factors that IRS considers in determining whether to waive the 60-day rollover requirement. These factors include

1.  Errors committed by a financial institution;

2.  Inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error;

3.  The use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and

4.  The time elapsed since the distribution occurred.