If you have recently received a distribution from an IRA or retirement plan and have not reinvested it within 60 days, you may be subject to taxes and penalties. Fortunately, the IRS has created a self-certification procedure to make it easier to apply for an exemption if you have a valid excuse for missing the deadline. When you receive a distribution from an IRA or retirement plan, you must reinvest it within 60 days in order to make a valid cumulative contribution. If you fail to do so, the amount withheld 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 reinvestment 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. If you don't qualify for an automatic exemption, you can request an exemption from the IRS or use the self-certification procedure to make a late reinvestment contribution. The new self-certification procedure is good news for IRA account owners who have a valid excuse for missing the 60-day deadline for tax-free reinvestments.
Currently, there is no impact on federal income tax if a distribution from an IRA is properly transferred to the same IRA, to another IRA, or to an eligible retirement plan, such as a 401(k) plan. If you have a SEP IRA, a SIMPLE IRA, a traditional IRA and a Roth IRA, they are all treated the same for reinvestment purposes under the 60-day rule. A beneficiary other than their spouse from a deceased person's plan or IRA is not eligible to transfer a distribution received from the plan or IRA. The best-case scenario is that the reinvestment occurred this year, but even if the renewal occurred last year, the strategy will help in the long term.
