Hardship Exception to 60-day Rollover
Rule
M. Travis DeHaven
Leah M. Singleton
Troutman Sanders LLP
Atlanta, Georgia
The Internal Revenue Code requires the distributed amounts from a qualified plan, 403(b) plan, 457 plan, or IRA to be transferred to an eligible retirement plan within 60 days of receipt in order to avoid including the distribution in gross income. A distribution that is not rolled over by the 60th day following receipt is treated as taxable income. In addition, the Code imposes an additional 10% tax on the distribution if not rolled over within the 60-day period. Recently, the IRS published guidance regarding a hardship exception to the 60-day rollover period.
Automatic Waiver of 60-day
Rollover Rule
There are certain circumstances where a taxpayer will automatically be granted an extension of one year (from the beginning of the 60-day rollover period) to transfer the distribution to an eligible retirement plan. The automatic extension is granted if a financial institution received funds prior to the end of the 60-day rollover period, the taxpayer followed all procedures required by the financial institution for depositing the funds within the 60-day rollover period, and the funds were not deposited within the 60-day rollover period due solely to an error on the part of the financial institution.
Hardship Exceptions to 60-day
Rollover Rule
To request a waiver of the 60-day rollover period, the taxpayer must apply for a hardship exception and pay the user fee of $90. In determining whether to grant an exception, the IRS will consider all relevant facts and circumstances, including (1) errors committed by a financial institution; (2) the taxpayer’s inability to complete a rollover due to death, disability, hospitalization, incarceration, foreign country restrictions, or postal error; (3) the use of the amount distributed; and (4) the time elapsed since the distribution occurred. Commentators suggest the IRS may grant an exception where the participant received payment in the form of a check but did not cash the check since the money could not be used for other purposes.