By Fredrick P. Niemann, Esq. of Hanlon Niemann & Wright, a Freehold, NJ Estate Planning Attorney
Recently our friends at Atlas Advisory Group, LLC published an article about the new self-certification for 60-day rollovers, and how it avoids the $10,000 PLR Fee.
From The IRA Digest November to December 2016 edition:
The IRS recently issued Revenue Procedure 2016-47, in which they provide guidance for a new self-certification procedure for eligible retirement account owners who miss the 60-day rollover deadline. Your clients who qualify for this new self-certification procedure will not have to use the IRS private letter ruling (PLR) procedure, for which the fee was increased to $10,000 as of February 1, 2016.
Generally, distributions taken from an IRA or account under employer-sponsored retirement plan (employer plan) are treated as ordinary income. Any pre-tax portion of distributions is subject to income tax plus a 10% additional tax (early distribution penalty) if the retirement account owner is under age 59 ½ at the time the distribution occurs and does not qualify for an exception to that penalty. However, any eligible amount of a distribution that is properly rolled over is excluded from income, and therefore non-taxable.
The 60-day deadline is one of the requirements that must be met by a rollover in order for it to be considered valid. Under this requirement, the rollover contribution must be completed within 60 days after the account owner receives the distribution.
If the 60-day deadline is missed, the amount is no longer eligible for rollover unless the account owner qualifies for an exception-such as qualifying for an automatic waiver or if the IRS waives the deadline through a PLR.
But, with this new self-certification option, retirement account owners now have a contingency provision that allows them to self-certify that they qualify for a waiver of the 60-day deadline.
The New Self-Certification Process
Revenue Procedure 2016-47 includes an explanation of how a retirement account owner can qualify for a waiver of the 60-day deadline by using the self-certification procedure. It also includes a sample self-certification letter that the retirement account owner can provide to the plan administrator or IRA custodian with which the rollover contribution is being made.
Requirements for Self-Certification
A retirement account owner is eligible to use the self-certification procedure only if the following three requirements are satisfied:
- The IRS has not already denied a waiver request for any portion of the distribution.
If the retirement account owner already submitted a PLR request to waive the 60-day deadline for any portion of a distribution and the request was denied, no portion of that distribution is eligible for the self-certification process.
- The reason for missing the deadline is on the IRS’s preapproved list. Revenue Procedure 2016-47 includes a list of acceptable reasons for missing the 60-day deadline for the purposes of being eligible for self-certification, providing the reason actually resulted in the deadline being missed. These include:
- The financial institution that made the distribution or received the rollover contribution made a mistake.
- The distribution was made in the form of a check that was misplaced and was never cashed.
- The retirement account owner’s principal residence was severely damaged.
- A member of the retirement account owner’s family died.
- The retirement account owner or a member of his/her family was seriously ill.
- The retirement account owner was incarcerated.
- The deadline was missed due to a postal error.
Most of these reasons are consistent with PLR requests for which the IRS often provides favorable rulings.
- 30-day Safe harbor Contribution Deadline
The rollover contribution must be made to the receiving account “as soon as practicable”, after the reason for missing the deadline no longer prevents the retirement account owner from making the rollover contribution. This deadline is considered to have been met if the contribution it made within 30 days after the reason(s) no longer exist.
Subject to IRS Examination
According to the Revenue Procedure, the IRS may consider whether the requirements for a waiver have been met during the course of an examination, and may determine that the waiver requirements were not met because of:
- Material misstatement in the self-certification;
- The reason or reasons that were claimed for missing the deadline did not actually prevent the retirement account owner from meeting the deadline; or
- The 30-day deadline as not met.
In such cases, the account owner would be required to include the amount in income and could be subject to IRS penalties for failure to pay the proper amount of income taxes that would have been owed on the distribution.
To discuss your NJ Estate Planning matter, please contact Fredrick P. Niemann, Esq. toll-free at (855) 376-5291 or email him at firstname.lastname@example.org. Please ask us about our video conferencing consultations if you are unable to come to our office.