IRA Rollovers
Posted Tuesday, December 18, 2012 by John S. Palmer
Withdrawals from an individual’s IRA are subject to income tax unless the amount withdrawn “is paid into an IRA [or other eligible retirement plan] for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution.” However, a subsection of Section 408(d) of the Internal Revenue Code states that the Treasury Secretary may waive this 60-day rollover requirement if enforcing it would “be against equity or good conscience, including casualty, disaster or other events beyond the reasonable control of the individual subject to such requirement.”
A 2003 Revenue Procedure issued by the IRS (Rev. Proc. 2003-16) provides that when determining whether to grant a waiver of the 60-day rollover requirement, the IRS will consider all relevant facts and circumstances including (1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error; (3) the use of the amount distributed (for example, in the case of a payment by check, whether the check was cashed); and (4) the time elapsed since the distribution occurred.
In a Private Letter Ruling issued October 26, 2012, the IRS declined to waive the 60-day rollover requirement for a taxpayer who withdrew funds from her IRA and used them to pay the initial costs for moving into a nursing home. The taxpayer put her house up for sale and planned to avoid income taxes on the IRA withdrawal by using proceeds from the sale of the home to replenish the IRA within 60 days of the withdrawal; however, it took over 140 days to complete the sale. In ruling against this taxpayer, the IRS concluded that she had essentially used the IRA to make a short term loan to herself in order to take advantage of a time-sensitive opportunity to secure a bed in the nursing home, and while she had intended to repay the funds to the IRA within 60 days, she assumed the risk that she might not be able to do so.
If you have any questions or would like to schedule an appointment, please call us at (425) 455-5513, toll free at (877) 455-5513, or info@palmerlegal.com.