Advanced Underwriting Consultants

Question of the Day – November 3

Ask the Experts!

Here’s the question of the day.

Question: My client has taken a distribution from an IRA, and is nearing the deadline for being able to re-deposit the money tax free under the 60-day rollover rule.  How rigid is the IRS’s deadline?

Answer: A taxpayer may make a 60-day rollover of an eligible rollover distribution if, after receiving the distribution, the amount is deposited into another eligible plan or IRA.  The taxpayer must make the rollover contribution by the 60th day after receiving the eligible rollover distribution.

The IRS may create a special extension to the 60-day requirement in cases where failure to meet the normal deadline is due to circumstances completely out of the control of the taxpayer.  Extensions are not routinely granted.

A recent Private Letter Ruling, PLR 201021040, gives one example where IRS waived the 60-day time period and allowed a deposit after 83 days to be treated as a tax-free rollover where the taxpayer proved he was erroneously advised by his financial advisor that he had 90 days to complete the transaction.

Under the facts of the PLR, Taxpayer A was the owner of an IRA with Custodian C and wished to do a rollover to Custodian D.  Taxpayer A consulted Financial Advisor B and was told he had 90 days to complete the transaction.  Taxpayer A has documentary proof of the erroneous advice given by Financial Advisor B.  In this case, IRS allowed the tax-free rollover even though the deposit into the new account was 83 days after withdrawal from the old account.

The IRS only grants waivers to the 60-day rollover requirement in limited circumstances.  Here’s what IRS itself says about waivers to the 60-day rollover period in Publication 590:

In determining whether to grant a waiver, the IRS will consider all relevant facts and circumstances, including:

  • • Whether errors were made by the financial institution,
  • • Whether you were unable to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error,
  • • Whether you used the amount distributed (for example, in the case of payment by check, whether you cashed the check), and
  • • How much time has passed since the date of distribution.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.

Question of the Day – September 23

Ask the Experts!

Here’s the question of the day.

Question: My client died naming his estate the beneficiary of his IRA.  The surviving spouse is the only beneficiary of the estate.  Can the IRA qualify for spousal rollover?

Answer: Maybe, although it may require seeking a private letter ruling to achieve tax certainty.

Most people assume that if a trust or the estate is the beneficiary and a surviving spouse is the trustee or executor of the estate, the surviving spouse can just take a distribution and roll it into his/her IRA.

It is IRS policy to allow such a rollover provided

  • the surviving spouse is the only beneficiary of the trust or estate and
  • the surviving spouse has the right as trustee or executor to cause the IRA to be distributed to himself/herself without the consent of a third party.

Any other set of circumstances would defeat the ability of a surviving spouse to do a spousal rollover.

As if this were not bad enough, the above is merely an IRS policy spelled out in Private Letter Rulings.  The regulations or published IRS rulings do not give any citable authority for the position.  Numerous PLRs have allowed for the spousal rollover, but it was necessary for the surviving spouse to go to the time and expense to get a PLR.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.