The 60 day rollover rule is an important guideline to be aware of when dealing with accounts with pre-tax income, such as a traditional 401 (k) or traditional IRA. According to the IRS, you have 60 days from the date you receive a distribution from an IRA or retirement plan to transfer it to another plan or IRA. If you don't transfer your payment within this time frame, it will be taxable (except for qualifying Roth distributions and any amount already taxed) and you may also be subject to additional taxes, unless you qualify for one of the exemptions to the additional 10% tax on early distributions. The IRS may waive the 60-day renewal requirement in certain situations if you missed the deadline due to circumstances beyond your control.
These FAQs address when the 60-day renewal requirement can be waived. Additionally, the IRS only allows a transfer from one IRA to another IRA (or the same IRA) in any 12-month period, regardless of the number of IRAs you own. If you don't qualify for an automatic exemption, you can request an exemption from the 60-day renewal requirement from the IRS or use the self-certification procedure to make a late reinvestment contribution. The self-certification process allows a person to initially obtain reinvestment treatment and allows the financial institution to accept the transfer (and declare it as such using Form 5498, unless the institution knows that the self-certification is false).
The new self-certification procedure is good news for IRA owners, who have a valid excuse for missing the 60-day deadline for tax-free accruals. It should be noted that this self-certification letter is delivered to the financial institution receiving the transfer (not to the IRS), although the person must keep a copy, since the IRS reserves the right to review the transfer later during an audit. Or when it is necessary to transfer funds through distribution and reinvestment because the current IRA provider cannot or does not want to cooperate with a direct transfer from trustee-to-trustee to trusteeship. If all conditions are met, then the plan administrator or IRA trustee or custodian can accept your contribution as a tax-free cumulative contribution.
Technically, it's possible to withdraw money from an IRA through indirect reinvestment and use it as a short-term loan. This way, the 60-day rollover rule provides an opportunity to apply for a short-term, interest-free “loan” from your QRP or IRA. However, it should be noted that this does not apply in cases where death of the owner of the IRA occurs (although death of another family member is eligible). In such cases, resolution by private letter may be necessary. In conclusion, understanding and following the 60 day rollover rule is essential when dealing with accounts with pre-tax income such as traditional 401 (k)s and IRAs.
It's important to note that if you don't transfer your payment within this time frame, it will be taxable and you may also be subject to additional taxes. The IRS may waive this requirement in certain situations if you missed the deadline due to circumstances beyond your control. Additionally, there is another guideline you should know about: The IRS only allows a transfer from one IRA to another IRA (or same IRA) in any 12 month period regardless of how many IRAs you own.
