The IRS unveiled a new procedure Wednesday to help people who accidentally miss the 60-day time limit for rolling over their retirement plan distributions into another qualified retirement plan or IRA.

Eligible taxpayers can now qualify for a waiver of the 60-day time limit and avoid possible taxes and penalties on early distributions, if they meet certain requirements. The revenue service also provided a sample of a letter that taxpayers can use to prove to the retirement plans receiving the rollover that they qualify for the waiver.

(Bloomberg News)
The IRS now has the authority to grant a waiver during a subsequent examination. (Bloomberg News)

Traditionally, an eligible distribution from an IRA or workplace retirement plan can only qualify for a tax-free rollover if it’s contributed to another IRA or workplace plan by the 60th day after it’s received. In most cases, taxpayers who don’t meet that 60-day time limit can only obtain a waiver by asking for a private letter ruling from the IRS.

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A taxpayer who misses the two-month time limit will now be able to more easily qualify for a waiver if one or more of the 11 circumstances listed in the revenue procedure apply to them. Those mitigating circumstances can include cases when a distribution check was misplaced and never cashed; the taxpayer’s home was severely damaged; or the taxpayer or family member becomes severely ill or dies.

Even if a taxpayer does not self-certify, the IRS now has the authority to grant a waiver during a subsequent examination.

The revenue service is encouraging eligible taxpayers who wish to transfer their retirement plan or IRA distributions to consider requesting that the administrator or trustee make a direct trustee-to-trustee transfer, rather than doing a rollover. Doing so can avoid some of the delays and restrictions that often arise during the rollover process.

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.