A 60 day rollover occurs when funds are distributed from a retirement account directly to the owner who then has 60 days to "rollover" the funds to an IRA to avoid paying tax. If the funds do not make it to the proper account, the whole amount is taxable. There are many pitfalls to the 60 day rollover and mistakes happen frequently however there is possible relief by requesting a Private Letter Rulings (PLR) from the IRS. It is best to avoid the mistake because fees for rollover PLRs start at $500 for a rollover less than $50,000 and $3,000 for rollovers over $100,000 not including the professional fee to properly draft the PLR request which can thousands of dollars.
The best way to avoid the 60 day rules is to do a trustee-to-trustee transfer (from one IRA custodian directly to the other) where you do not take what is known as "constructive receipt." If a check is sent to you, as long as the check is made payable to the IRA (i.e.- TD Ameritrade FBO: John Doe), then it is considered a trustee-to-trustee transfer not subject to the 60 day rollover rules because you cannot cash a check that is not made out to you directly.
In order to qualify for relief of a 60-day violation, you must be able to show that you had a true intent to do a rollover. If the funds were used for anything during the 60 day period, chances are your PLR will be denied. The following are summary examples or PLR Rulings:
- PLR 201117046: Denied- Taxpayer thought she had 90 days to complete her "search" for a new custodian. Ignorance of the rules is not a defense.
- PLR 201118025: Denied- Taxpayer used funds as a short-term loan to help finance handicapped mother's residence.
- PLR 201123048: Denied- IRS denies wife an extension to roll deceased husbands plan distribution to her own IRA. Normally a spouse beneficiary can do a rollover (a non-spouse beneficiary can never do a rollover) however in this case, the funds were distributed from the company plan into a joint account before the husband died not after and thus IRS denied it
- PLR 201126041: Denied- IRS tells taxpayer the failure to complete a rollover was her own fault, not the advisors. In many PLRs, where the taxpayer was able to prove that the advice they were given by the advisor, bank, or brokerage was inaccurate causing them to miss the 60 day deadline, the PLR is granted and they then have 60 days to fix the mistake. In this case, the IRA owner moved her IRA because she was unhappy about the high fees in the account. The advisor told her to get the funds into another IRA within 5 days. Even though the advice of 5 days was incorrect, the IRS denied the ruling stating that had she followed the incorrect advice, there would be no 60 day violation.
- PLR 201122032: Granted- IRS grants relief after taxpayer's get bad advice.
- PLR 201130014: Denied- IRA owner withdrew from an IRA due to financial hardship. This was denied because there was no intent to do a rollover; the funds were used during the 60 day period.
The IRS is denying more and of these PLR requests than they have in the past so the best plan is the trustee-to-trustee transfer whenever possible.