10 Things You Should Know About Fixing Late Rollovers with Self Certification
When retirement account funds are on the move, things do not always go as planned. The best way to move these funds is to do so directly, but that may not always be possible. It is very common for money to be moved between retirement accounts by using 60-day rollovers. Unfortunately, the 60-day rollover deadline is often missed.
Fortunately, there is a way to fix these mistakes. You can complete a late 60-day rollover of retirement funds using a self-certification procedure. Here are 10 things you should know about this procedure:
- Self-certification is available for missed 60-day rollover deadlines for both IRAs, including Roth IRAs, SEP IRAs and SIMPLE IRAs, and company plan accounts.
- This procedure can provide an immediate and cost-free fix for a missed rollover deadline, potentially saving you from taxes, penalties, and the loss of tax-deferral or tax-free status of your retirement savings.
- To qualify, you cannot have been previously denied a waiver by the IRS and the reason for your late rollover must be one from a list of 12 specific reasons approved by the IRS. Among the most common of these 12 reasons are serious illness and mistakes by the financial institution.
- There is no “miscellaneous” or “other” category when it comes to the self-certification process. If you are late for a reason that is not one of the 12 listed ones, you would still need to go through the process of filing a private letter ruling (PLR) to seek relief.
- You must redeposit the funds in a retirement account as soon as possible after the reason (or reasons) no longer prevent you from making the contribution. There is a 30-day safe harbor window to meet this requirement.
- You must make a written certification to the plan administrator or IRA custodian that a contribution satisfies the conditions for a waiver. The IRS has even provided a model letter that should be used for this written certification requirement.
- Self-certification is not a waiver by the IRS. You are not necessarily completely off the hook. You are allowed to report a contribution as a valid rollover on your tax return, but the IRS can still later audit your return and determine that a waiver was not appropriate.
- Late rollovers through self-certification will be on the IRS’ radar. Reporting from the IRA custodian will tip off the IRS that a late rollover has occurred.
- If you violate another rollover rule other than missing the deadline, you are out of luck. The self-certification process will not help you. For example, if you do more than one IRA-to-IRA or Roth IRA-to-Roth IRA 60-day rollover in a 12-month period, this mistake cannot be fixed with self-certification.
- While self-certification is helpful, your best bet to avoid missing the 60-day deadline, as well as other rollover errors, is to stick with trustee-to-trustee transfers and direct rollovers when you are looking to move your retirement funds.
By Sarah Brenner, JD
Director of Retirement Education
Ed Slott and Company, LLC
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Christian Cordoba, founder of California Retirement Advisors, has been a member of Ed Slott's Master Elite IRA Advisor Group since 2007.