If you elect to receive a distribution to an IRA or qualified retirement plan in the form of a rollover, the distribution must be rolled over by the 60th day after the day it is received in order to qualify for tax-free rollover treatment under the Internal Revenue Code.
Absent a waiver or extension of the 60-day rollover period, amounts not rolled over within the 60-day period must be treated as a taxable distribution in the year distributed (even if the 60-day period expires in the next year).
The IRS may waive the 60-day rollover requirement in certain circumstances by granting a “hardship waiver”. To apply for a formal hardship waiver, the taxpayer must submit a request to the IRS for a letter ruling (which includes a large fee).
Fortunately, however, the IRS recently issued Rev. Proc. 2016-47, which, under certain circumstances, allows taxpayers to use a new self-certification procedure to obtain tax-free rollover treatment in lieu of a hardship waiver. While self-certification is not a formal hardship waiver issued by the IRS, it is functionally equivalent because (assuming the taxpayer has followed the applicable rules), the taxpayer may self-certify his or her eligibility to waive the 60-day rollover requirement and treat his or her distribution as a valid, tax-free rollover.
The self-certification procedure allows a taxpayer to submit a written self-certification to a plan administrator or IRA trustee describing how the rollover distribution qualifies for tax-free treatment. Absent knowledge to the contrary, the plan administrator or IRA trustee can rely on the self-certification when determining whether to waive the 60-day rollover requirement.
The IRS/plan administrator/IRA trustee will ordinarily honor a taxpayer's truthful self-certification that they qualify for a waiver under the circumstances. However, taxpayers should always keep copies of their self-certification(s) with their tax records.
Contact Butterfield Schechter LLP for more information regarding the applicable rules governing the new self-certification procedure. If you have recently elected to receive a distribution in the form of a rollover and missed the 60-day deadline to do so, our experienced attorneys can assist you through the process.