4016 / How is the 60-day time limit on rollovers applied?

Once a distribution eligible for rollover treatment is received by a participant, the participant must make the rollover contribution within 60 days.¹ If more than one distribution is received by an employee from a qualified plan during a taxable year, the 60-day rule applies separately to each distribution.²

The IRS has the authority to waive the 60-day requirement where failure to waive it would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to the requirement.³

The IRS has issued guidelines for requesting a waiver of the 60-day requirement.⁴ Under the guidelines, a taxpayer may request a private letter ruling from the IRS waiving a failure to meet the 60-day requirement. The IRS will consider “all relevant facts and circumstances,” such as whether financial institutions committed any errors; whether an incomplete rollover was due to death, disability, hospitalization, incarceration, or postal error; how an amount distributed was used by the taxpayer, including whether a check was cashed; and how much time has elapsed since the distribution. The guidelines grant automatic waivers in cases where the failure to timely complete a rollover is “solely due to an error on the part of the financial institution.” If the taxpayer followed the institution’s required procedures within the 60-day rollover period, and the error is ultimately corrected within one year of the distribution, no waiver request is necessary.

The IRS has liberally applied the new guidelines, granting waivers for alcohol and drug treatment, blizzards, bank errors, dementia, health problems, hurricanes, mistakes of fact including confusing an IRA distribution for a life insurance or annuity payment, and mistakes of law including not understanding the tax consequences of the distribution.⁵ The IRS has denied waivers where a taxpayer used a distribution as a short term loan and made no actual attempt to roll over the distribution within the 60-day limit.⁶

Prior to EGTRRA 2001, no waivers of the 60-day time limit were permitted, even where the failure to meet it was the result of mistake, erroneous advice, the inaction of third parties, or reliance on prior rulings by the IRS itself.⁷

Where a stock certificate representing the participant’s distribution was sent by registered mail but the participant was away from home, the 60-day period did not begin until the taxpayer signed the registered mail claim check at the post office and took physical receipt of the stock distribution.⁸ Likewise, the 60-day period began on the taxpayer’s receipt of a distribution check even though the check had been issued ten months earlier but delivery was delayed because of an incorrect address.⁹

The 60-day period does not include any period during which the amount transferred to the individual is a frozen deposit that cannot be withdrawn because of the bankruptcy or insolvency of the financial institution or any state-imposed requirement based on the bankruptcy or insolvency or threat of bankruptcy or insolvency of institutions in the state. Also, the 60-day period will not be considered to expire any earlier than ten days after the account ceases to be frozen.¹⁰

The inclusion of a distribution as income is not deferred into another calendar year merely because the 60-day rollover period extends into the succeeding year.¹¹

A timely rollover occurred where a corrective bookkeeping entry was made after the 60-day period but, based on the facts of the case; the Tax Court concluded that the transfer itself actually had occurred within the required period.¹²

A letter ruling waived the 60-day rollover period for transfers between IRAs where a financial institution was closed on the sixtieth day, a Sunday, and the rollover was completed on the following day.¹³ See Q 4017 for a discussion of the new self-certification process that can allow taxpayers to obtain a waiver of the 60-day time limit.