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Retirement Income Toolbox

| December 15, 2016
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A very commonly used platform for retirement savings and investments is the IRA.  The IRS has amended the rules to restrict once per year rollovers if the individual has the distribution check payable and mailed to themselves (Currently no restriction on IRA to Roth Ira conversions, trustee-to-trustee transfers, IRA-to-plan rollovers, plan-to-IRA rollovers and plan-to-plan rollovers).  This rule also states that if the funds are not put into another IRA within 60 days, the distribution will be taxed and a 10% early withdrawal fee could apply to those under 59 ½ years old.

In the past the only way to remedy this possible mistake of missing the 60 day deadline was to obtain a successful private letter ruling request from the IRS.  This takes time and became a very expensive process in Feb 2016 when the IRS set the cost of $10,000 on top of fees paid to someone that prepared the ruling according to Ed Slott, Investment News Sep 25, 2016.

An immediate fix has been revealed in the form of a new IRS guideline that my able to fix the mistake of missing the 60-day window not requiring the Private Letter Ruling and the $10,000 plus fees that go along with it.  An individual may now self-certify that they qualify for a waiver of the 60-day rollover period.  The IRS even provides a sample form letter that can be used as part of this process according the Ed.

For a client to be a candidate for self-certification, there can be no prior denial by the IRS for a waiver; the reason must be one on the list of specific reasons provided by the IRS (financial institution or postal error; misplacing and never cashing the check; depositing and keeping the distribution in an account mistakenly thought to be a retirement account, and the distribution company not providing information required by the receiving company despite reasonable efforts to obtain information); and the funds must be redeposited in a retirement account as soon as practicable “after the reason or reasons no longer prevent the taxpayer from making the contribution.  There is a 30-day safe harbor window to meet the “as soon as practicable” guideline.  This exception only applies to valid rollovers.  If a second IRA to IRA 60-day rollover wasn’t valid it could not be covered by this exception. *

For the IRS requirements and more information visit the IRA at:  https://www.irs.gov/retirement-plans/retirement-plans-faqs-relating-to-waivers-of-the-60-day-rollover-requirement#1

 

* Ed Slott, Investment News Sep 26-30th, 2016

  1. Traditional IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a conversion from a Traditional IRA to a Roth IRA. The converted amount is generally subject to income taxation. Future tax laws can change at any time and may impact the benefits of Roth IRAs.  Their tax treatment may change.
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