Insights

IRS Letter Waives Roth 60-Day Rollover Deadline


On September 1, 2021, the IRS released a private letter ruling granting a waiver of the otherwise applicable 60-day timeframe to rollover Roth funds from a qualified plan to a Roth IRA.

The letter was issued in response to a request by a taxpayer who had contributed on both a pre-tax and post-tax basis (through a designated Roth account) to the defined contribution plan offered by his employer. When he terminated employment, he requested a direct rollover of his pre-tax elective deferrals and earnings to a traditional IRA and a direct rollover of his Roth contributions and earnings to a Roth IRA. Both IRAs had been previously established at the same financial institution.

The plan’s TPA issued two separate checks to the financial institution, one reflecting the amount of the designated Roth contributions and earnings and the other reflecting the amount of the pre-tax elective deferrals and earnings. Despite the taxpayer’s instructions for each amount to be deposited in the appropriate IRA, the financial institution deposited both checks in the traditional IRA.

The taxpayer did not become aware of the error until many months later. At such time, the financial institution suggested that he submit a request to the IRS for a waiver of the 60-day rollover requirement to correct the mistake.

In the letter, the IRS explains that the Internal Revenue Code allows a waiver of the 60-day requirement. Because if not providing one would be against equity or good conscience and events beyond the taxpayer’s control would make a refusal of the waiver unreasonable. In deciding whether to grant the waiver, the IRS will consider all relevant facts and circumstances, including mistakes by financial institutions; inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or a postal error; the use of the amount distributed; and the time elapsed since the distribution occurred.

The IRS concluded that the information and documentation presented by the taxpayer supported his position that the failure to satisfy the 60-day rollover deadline was due to an error by the financial institution and waived the 60-day rollover requirement. The taxpayer was given 60 days from issuance of the letter to roll the misdirected funds to the Roth IRA.

Although the ruling technically only applies to the requesting taxpayer and cannot be cited as precedent, it provides insights into how the IRS may view similar situations.

Private Letter Ruling 202147015 »