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Retirement tax questions
@ingrid-kavic wrote:
So the check was issued in 2022 so apparently it'll be for next year's taxes, that's why no 1099-R was sent, per the "live guidance" I paid extra for. It is made out to the financial institution, not my husband, so I'm hopeful you're right and no penalty. Thanks for your reply.
[Edited to add: if the check was made out to the new plan, and not to yourself (or your spouse), then this answer does not apply. You can still deposit the check into the new plan and the 60 day time window does not apply to you, per the expert answers below. Do make sure that the new plan knows you want to open a traditional IRA (and not a Roth IRA or a broker account) before you send the check. ]
If you received a physical check from one plan, then you were attempting an "indirect rollover." You have 60 days to deposit the funds in the new account. If you miss the 60 day window, the check becomes taxable income, like any other withdrawal. You will receive a 1099-R in January 2023, and you report the withdrawal on your 2022 tax return. You will pay regular income tax plus a 10% penalty if you are under age 59-1/2.
There is a loophole to the 60 day rule. However, this is fairly advanced tax practice, and I suggest you get an accountant to help you qualify. I will post the information for you to review, but you really should get professional guidance.
Ways to get a waiver of the 60-day rollover requirement.
There are three ways to obtain a waiver of the 60-day rollover requirement.
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You qualify for an automatic waiver.
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You self-certify that you met the requirements of a waiver.
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You request and receive a private letter ruling granting a waiver.
You don't qualify for the automatic waiver, and a private letter ruling has a $10,000 application fee. You might be able to self-certify that you qualify for a waiver.
How do you self-certify that you qualify for a waiver?
Pursuant to Revenue Procedure 2016-47 in Internal Revenue Bulletin 2016-37, available at IRB 2016-37, you may make a written certification to a plan administrator or an IRA trustee that you missed the 60-day rollover contribution deadline because of one or more of the 11 reasons listed in Revenue Procedure 2016-47. A plan administrator or an IRA trustee may rely on the certification in accepting and reporting receipt of the rollover contribution. You may make the certification by using the model letter in the appendix to the revenue procedure or by using a letter that is substantially similar. There is no IRS fee for self-certification. A copy of the certification should be kept in your files and be available if requested on audit.
Note.
A self-certification is not a waiver by the IRS of the 60-day rollover requirement. If the IRS subsequently audits your income tax return, it may determine that you do not qualify for a waiver, in which case you may owe additional taxes and penalties.
One of the 11 conditions in Revenue Procedure 2016-47 is "the distribution, having been made in the form of a check, was misplaced and never cashed;" and another condition is the contribution must be made "as soon as practical" after the condition causing the failed rollover is cured. If the rollover occurs within 30 days, that is deemed to be soon enough.
So, one course of action might be:
1. tear up the check
2. call the issuing broker and tell them the check was accidentally lost, and they need to stop payment on the check and credit the funds back to your account.
3. ask the issuing broker to issue a new check, and deposit the new check into the rollover IRA;
4. or better still, ask the issuing broker to perform a direct transfer to the new IRA, without sending you any money (a direct transfer is much safer and is preferred for many reasons.)
Take care of the IRS note above, self-certifying does not mean you are guaranteed not to be penalized. The IRS can still audit you, and might decline the waiver of the 60 day rule. So keep excellent records of all your communications with the brokers about your lost check, replacement, and so on.
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