Getting an Extension for the 60-Day IRA Rollover Period

If you take a distribution from your IRA and want to avoid any tax on it, you must roll it over-to the same IRA, a new IRA, or a qualified retirement plan-within 60 days. The 60 days is fixed by law. The 60-day period begins the day after the date of receiving the distribution and includes weekends and holidays (e.g., there is no extra time when the 60th day falls on a Sunday).

In some situations, an automatic extension applies. If not, the IRS has the authority to extend the 60-day rollover period where the failure to waive the 60-day period would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the IRA owner.

Automatic Extensions

The IRS automatically grants an extension if all of the following conditions are met:

1. The financial institution receives the funds before the end of the 60-day rollover period.
2. The IRA owner followed all the procedures set by the financial institution for depositing the funds into an eligible retirement plan within the 60-day period. This includes completing all the paperwork and giving instructions to deposit the funds into an eligible retirement plan.
3. The failure to deposit the funds into an eligible retirement plan within the 60-day rollover period was the financial institution’s error.
4. The rollover is actually completed within 1 year from the beginning of the 60-day rollover period.
5. The rollover would have been valid if the financial institution had deposited the funds as instructed.

Discretionary Extension

If an IRA owner does not qualify for an automatic extension, he or she can ask the IRS for one. This entails the cost of a user fee ($3,000) payable to the IRS and professional fees (typically $2,500 to $10,000) to prepare the request. In deciding whether to grant an extension, the IRS looks at all the relevant facts and circumstances, such as:

• Errors by the financial institution
• The inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error
• The use of the distribution (e.g., if the payment was by check, whether the check was cashed)
• The time elapsed since the distribution occurred

Applying these factors, the IRS has granted an extension in these situations:

• A financial advisor misappropriated the funds. Once the IRA owner learned of this, he asked for and obtained an extension of time to complete his rollover).
• Parkinson’s disease prevented a rollover. The IRA owner who suffered from this condition never completed the rollover; his family requested an extension. Similarly, an IRA owner who suffered from a condition that impaired her ability to manage her financial affairs was given more time to complete the rollover.

Note: There is a sample letter in Revenue Procedure 2009-4 that contains all the information needed to make an extension request.

Factors that Don’t Warrant an Extension

While the IRS is fairly liberal in granting extensions, not every situation will result in an extension. Here are some requests for an extension that were rejected by the IRS:

• Unfamiliarity with the IRA rollover rules. An elderly IRA owner who wanted to consolidate his holdings in one bank took an IRA distribution but failed to roll it into a new IRA within the 60-day period. He learned of his failure when he received a Form 1099 and made a letter-ruling request to the IRS for an extension. The IRS said no because the failure to complete the rollover within the time limit was in the IRA owner’s control (“ignorance of the law is no excuse”).
• Mistaken belief that the rollover period was 90 days. The IRA owner thought that the rollover period was 90 days instead of the 60 days.
• Failure to be informed of the rollover period by the bank. The fact that an IRA owner is not informed by the financial institution about the rollover period does not warrant a waiver.

Better Way

Sometimes IRA owners who want to make a rollover take a distribution because it can in some cases make it easier to complete. However, to ensure that the transfer is made and avoid any time limits, it is advisable to use a direct trustee-to-trustee transfer. The IRS owner completes paperwork necessary to instruct the trustee/custodian of the old IRA to transfer some or all of the funds to the trustee/custodian of the new IRA or qualified retirement plan.