If you miss the deadline for rolling over an IRA distribution to another IRA or eligible retirement plan, you could be subject to taxes and penalties. If you have a valid excuse, you may be able to obtain a hardship waiver from the IRS, but applying is time-consuming and expensive. Fortunately, the IRS recently created a new self-certification procedure to make it easier to claim eligibility for a waiver. Here's more information on who qualifies for the new procedure and how it works.
Close-Up on the 60-Day Rule
There's no current federalincome tax hit if you properly roll over an IRA distribution into the same IRA, another IRA or an eligible retirement plan, such as a 401(k) plan. For tax-free rollover treatment to apply, you generally must recontribute the amount distributed from the IRA to an IRA or eligible plan by nolater than 60 days after the date that you received the distribution.
If you miss the 60-day deadline, the taxable portion of the distribution — the amount attributable to deductible contributions and account earnings — is generally taxed. You may also owe the 10% early distribution penalty if you're under age 59½.
However, the IRS can waive the 60-day rule if two conditions are met:
Such waivers of the 60-day rule are generally referred to as "hardship waivers." Until recently, you had to use the IRS letter ruling process to apply for a hardship waiver, which was a major hassle and required paying a user fee. The new IRS self-certification procedure (see main article) can make life simpler when you need it most.
New Self-Certification Procedure
Taxpayers who miss the 60-day window for tax-free IRA rollovers can use the new self-certification procedure if at least one of these 11 circumstances apply:
If you qualify under one (or more) of these circumstances, you can claim eligibility for a waiver of the 60-day rollover rule by submitting a written self-certification document to the retirement plan administrator or IRA custodian or trustee.
Absent actual knowledge to the contrary, the plan administrator or the IRA trustee or custodian can then rely on the self-certification in determining whether you have satisfied the conditions for a waiver of the 60-day rollover requirement. If the conditions are satisfied, the plan administrator or the IRA trustee or custodian can accept your contribution as a tax-free rollover contribution. The new self-certification procedure went into effect on August 24, 2016.
Conditions for Self-Certification
The IRS provides a template for self-certification that you can use, or you may use a letter that's substantially similar. The self-certification document must state that the following conditions have been satisfied:
This last requirement will be automatically satisfied if you make the contribution within 30 days after the reason no longer prevents it.
The IRS also plans to modify its instructions for IRA contributions to require a plan administrator or an IRA trustee or custodian that accepts a rollover contribution after the 60-day deadline to report that the contribution was accepted (that is, that it was rolled over) after the deadline. So the IRS will be forewarned that you've taken advantage of the new self-certification procedure.
Differences between Hardship Waivers and Self-Certifications
Self-certification isn't technically a formal hardship waiver of the 60-day requirement. But it's effectively the same, assuming you follow all of the applicable rules, because you can treat the contribution as a valid rollover — unless you hear differently from the IRS.
If the IRS determines in the course of an audit that you didn't meet the requirements for a formal hardship waiver, you can be assessed an income tax deficiency and applicable penalties. So, you'd better get it right.
The new self-certification procedure is good news for IRA owners who have a valid excuse for missing the 60-day window for tax-free rollovers. If you're unsure whether you qualify for the new IRS procedure or if you need help drafting a self-certification letter, consult with your tax advisor.