New waiver of IRA 60 day replacement requirements

IRS Revenue Procedure 2016-47 gives information and guidance about waivers of the 60 day rollover requirement of IRA distributions. You can print it out and use the model letter IRS provided.

If you take a distribution from your IRA, 403(b), 457(b) or a qualified retirement plan, you can “pay it back” within 60 days and there’s no tax on the distribution. And, the 10 percent early withdrawal penalty for folks under age 59 1/2 does not apply.

It’s not quite that easy. Usually the distribution is reduced by the income tax withheld — probably 20 percent of the total. That means you have to use some other money to put the full distribution back and wait to claim the tax withheld on your next income tax return.

For example, if you received a distribution of $10,000 with $2,000 income tax withheld, your check is only for $8,000. You must put $10,000 back in a eligible IRA or qualified retirement plan and you are to do it within 60 days of distribution.

Now, with the new Revenue Procedure, IRS will waive the penalties for missing the 60 day deadline if one of 11 reasons caused the delay in replacing the full distribution within 60 days. You can “self certify” if IRS didn’t previously deny a waiver request and one or more of the reasons apply.

The reasons that are acceptable are:

An error by the financial institution is involved

The distribution check was misplaced and never cashed

The distribution was deposited and remained in an account you thought was a retirement account

Your principal residence was severely damaged

A member of your family died

A member of your family was seriously ill

You were in jail

A foreign country imposed restrictions

The Post Office made an error

The custodian delayed giving you information about the rollover rules despite your reasonable efforts to obtain the information

IRS has authority to grant a waiver of the penalties during an audit or other examination. If you can show the failure to replace timely and you had a special hardship, IRS can waive the penalties.

Did you hear? “A prudent person profits from personal experience, a wise one from the experience of others,” by Joseph Collins.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs


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