Life and Death Planning for Retirement Benefits

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144 Life and Death Planning for Retirement Benefits
If the rollover is less than $50,000: $ 500.
If the rollover is $50,000 or more, but less than $100,000: $1,500.
If the rollover is $100,000 or more: $3,000.
The next user fee schedule will be issued in Rev. Proc. 2011-8, in early 2011.
B. Earnings and RMDs during the out-of-plan gap period. Getting a hardship waiver does
not solve all the problems. For example, see the problem of designating a beneficiary for
an IRA established by the participant’s executor to receive a late rollover of a distribution
made during the participant’s life, B).
Also, all that can be rolled over is the amount of the distribution, not any income earned
on that distribution during the period of time the money was outside the IRA—regardless of how
long that was, and regardless of what hardship prevented the participant from completing the
rollover on a timely basis. Rev. Proc. 2003-16, § 3.04.
Another problem with long-delayed rollovers is what to do about required minimum
distributions RMDs; see that would otherwise have accrued in the meantime. The
waiver rulings typically specify that interim RMDs cannot be rolled over despite the extension
(see but do not specify how that nonrollable amount is to be determined.
Polly Example: Polly suffered from a mental disability in 2007, when she was age 69, and she
cashed out her entire $500,000 IRA. She did not have the mental capacity to know what she was
doing. In 2008, the year she reached age 70½, she was placed under guardianship and the guardian
applied for a waiver of the 60-day deadline to allow the $500,000 distribution to be recontributed
to the IRA. The waiver is granted by the IRS in 2009; the waiver specifies that any RMD cannot
be rolled over. But there was no RMD for the year that the distribution came out of the IRA, in
2007, because Polly was only 69 years old. An RMD would have accrued in 2008 and 2009 if the
money had still been in the IRA, but there was no “prior year-end balance” for either year because
the account didn’t exist. Accordingly it would appear that the guardian can roll over the entire
$500,000 in 2009 and start taking RMDs in 2010. This does not “cheat” the IRS too much because
Polly was taxable in 2008 and 2009 on the income earned by the $500,000 distribution outside the
IRA (and she is not allowed to roll over that income “as if” it had been earned inside an IRA).
There is no IRS guidance either confirming or denying the above conclusions.
C. Typical grounds for granting waiver: FI or FA error, illness, etc. Following issuance
of Rev. Proc. 2003-16, the IRS began issuing a flood of private letter rulings dealing with
these deadline waiver requests. Most successful waiver requests involve one or more of the
following situations:
Error by a financial advisor (FA) or financial institution (FI) is by far the most common
reason for obtaining a deadline waiver, accounting for an estimated half of all requests. The “good”
news is that the IRS always grants the waiver when the participant missed the deadline due to a
processing error by an FI or FA. Generally the IRS seems to require the FI or FA to admit the
mistake in writing. Typical are rulings in which the participant’s new financial advisor or
institution inadvertently established a regular taxable account instead of an IRA with funds
transferred from prior advisor or institution, such as PLRs 2004-02028, 2004-04053, 2004-01023,
2004-20035, 2009-51040, 2010-14073. If the professional error involved erroneous tax advice