Life and Death Planning for Retirement Benefits

Chapter 2: Income Tax Issues

143

period that begins on the day after the end of the active duty period. § 72(t)(2)(G) . The rollover contribution of a QRD does not erase the taxable income that resulted from the original distribution. The only advantage of this type of rollover is that (if the reservist has enough cash to replace the money he withdrew during his active duty service) this provision enables him to replace the funds in his plan without regard to the normal limits on IRA contributions ( ¶ 5.3.03 ). Since there is no tax deduction allowed for the contribution, it is advisable to make the contribution to a Roth IRA, so future earnings on the contribution will be tax-free. The “rollover” is reported on Form 8606 as a nondeductible contribution to an IRA. D. Automatic waiver for certain financial institution errors. The deadline is automatically waived in the following circumstances: The participant received a distribution after 2001, and (within the 60-day limit) transmitted the funds to a financial institution and did everything else required (under the financial institution’s procedures) to deposit the funds in an eligible retirement plan, but “solely due to an error on the part of the financial institution” the funds were not deposited into the eligible retirement plan within 60 days of the original distribution. Provided the funds are deposited in the eligible plan within one year of the original distribution, there is an automatic waiver of the rollover deadline, and no need to seek IRS approval. Rev. Proc. 2003-16 (see ¶ 2.6.07 ). E. Frozen deposits. What if the participant receives a distribution and deposits the money in a bank, and then the bank becomes insolvent so the participant can’t get his money out in time to complete the rollover? The 60-day period does not include the time during which the money is “frozen,” or end until at least 10 days after the money becomes “unfrozen.” § 402(c)(7)(B) , § 408(d)(3)(F) . 2.6.07 Hardship waiver of 60-day rollover deadline The IRS “may waive the 60-day requirement ...where the failure to waive such requirement would be against equity or good conscience, including casualty, disaster, or other events beyond the reasonable control of the individual subject to such requirement.” § 402(c)(3)(B) ; § 408(d)(3)(I) (effective for distributions after 2001). In Rev. Proc. 2003-16, 2003-1 C.B. 359, the IRS issued the following guidance for such hardship waivers; see also ¶ 2.6.06 (D). A. Procedure to request a waiver. A participant or surviving spouse can request a hardship waiver of the rollover deadline by following the usual procedures for obtaining a private letter ruling. Although the legislative history of EGTRRA indicates that Congress wanted the IRS to issue “objective standards” for granting hardship waivers of the 60-day deadline, the Rev. Proc. says only that the IRS will consider “all relevant facts and circumstances,” such as “death, disability, hospitalization, incarceration, restrictions imposed by a foreign country or postal error;...the use of the amount distributed (for example...whether the check was cashed); and...the time elapsed since the distribution occurred.” Obtaining an IRS letter ruling requires payment of a “user fee” (filing fee). Under Rev. Proc. 2010-8, 2010-1 IRB 234, § 6.01(4), (14), requests for hardship waivers of the 60-day rollover deadline have their own user fee schedule, which is: