Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

E. Taxpayer cannot later choose which rollover is tax-free. Yoav Example: In July, Yoav withdraws $60,000 from IRA #1, intending to roll it over tax-free to another IRA. Then he remembers that in April of the same year he received, and rolled over to IRA #2, a $1,000 distribution from IRA #1. He would rather pay tax on the $1,000 distribution he received in April than on the $60,000 distribution he received in July. He now wishes that he had said the $1,000 contribution to IRA #2 in April was part of his “regular” IRA contribution for the year, not a rollover of the distribution from IRA #1. Unfortunately, he can not now retroactively elect to treat the $1,000 he deposited in IRA #2 in April as a regular rather than a rollover contribution. In order for a contribution to qualify as a tax-free rollover the participant must elect, “ at the time the contribution is made , to treat the contribution as a rollover contribution. ...This election is irrevocable.” Reg. § 1.402(c)-2 , A-13. Thus, when Yoav made his $1,000 contribution to IRA B in April he was required to irrevocably designate it either as a rollover or a regular contribution. If he said it was a rollover contribution when he made it, he cannot retroactively change that election. 2.6.06 60-day rollover deadline; exceptions and blanket waivers A rollover generally must be completed no later than “the 60th day following the day on which the distributee received the property distributed.” § 402(c)(3)(A) ; § 408(d)(3)(A) . See also ¶ 2.1.03 regarding how this period is measured. Unlike the due date for tax returns, the 60-day deadline is apparently not eligible for the automatic extension of time (under § 7503) to the next business day if the 60th day falls on a weekend or holiday. The IRS has granted hardship waivers of the deadline ( ¶ 2.6.07 ) in several cases where the deadline fell on a weekend or other “bank holiday.” See PLRs 2006-06055, 2009- 30052, 2009-51044, 2009-52066, and 2010-39041. The deadline is 60 days, not two months. A distribution made on March 12th must be rolled over by May 11th; May 12th is too late. PLR 2005-23032. There are several exceptions to the 60-day deadline. The most significant one is that an individual may seek a “hardship waiver” of the deadline; see ¶ 2.6.07 . Here are other less commonly seen exceptions: A. First-time homebuyer. There is a 120-day deadline rather than a 60-day deadline for the rollover of a “first-time homebuyer” distribution ( ¶ 9.4.09 ) if the distribution is not used to purchase the residence “solely by reason of a delay or cancellation of the purchase or construction of the residence.” The recontribution of the thwarted homebuyer distribution is also not treated as a rollover for purposes of the once-per-12-months rule ( ¶ 2.6.05 ). § 72(t)(8)(E) ; PLR 2004-23033. B. Disaster-based extensions. The IRS tends to grant blanket extensions for this and other tax deadlines in the case of certain federally-recognized disasters. See the IRS pronouncement applicable to the disaster in question ( e.g. , IRS News Release IR-2004-115 extending deadlines for taxpayers affect by Hurricane Frances). C. Qualified reservist distribution. A qualified reservist distribution (QRD; ¶ 9.4.12 ) may be “rolled into” ( i.e., contributed to) an IRA or Roth IRA at any time during the two-year