Retiree Rollovers to IRAs and Other Plans
Proceeds of Lawsuit Settlement Rolled Over Tax-Free to IRA. – In settlement of a lawsuit, a
taxpayer recovered IRA funds lost through the wrongful actions of the IRA trustee and others.
The IRS ruled the taxpayer could roll the settlement proceeds over tax-free to another IRA. (Ltr.
Rul. 200452053; Ltr. Rul. 200705031.)
However, the IRS denied a rollover for another taxpayer involved in the same settlement
because the taxpayer had rolled over funds from the same IRA within the prior one-year period.
Consequently, the second rollover would violate the rule allowing an owner only one rollover
from the same IRA within a one-year period. (Ltr. Rul. 200452047.) See Chapter 6 of the Guide
for a discussion of nontaxable rollovers from IRAs.
Rollover of Employer Stock Not Reversible. – A retiree inadvertently instructed her qualified
retirement plan to roll over employer stock to her IRA. She had intended instead to take direct
ownership of the stock so she could preserve and defer capital gain tax on its increase in value.
The IRS, however, refused to allow her to ignore the rollover and correct her mistake. (Ltr. Rul.
200442032.) See Chapter 3 of the Guide for a discussion of the distribution of employer
securities from a qualified retirement plan.
60-Day Rollover Period Not Started By Misaddressed Lost Check. – The 60-day period for
rollover of a distribution from a qualified retirement plan to an IRA did not begin running when
the plan sent a check to the taxpayer’s financial advisor at the wrong address and the check
was lost in the mail. Instead, the 60-day period began running when the plan sent a
replacement check. (Ltr. Rul. 200430031.) Similarly, for a distribution check erroneously sent to
the decedent's estate instead of the surviving spouse. (Ltr. Rul 200722031.) See Chapters 3
and 6 of the Guide for discussions of nontaxable rollovers from qualified retirement plans and
IRAs.
IRS May Waive the 60-Day Rollover Requirement. – Distributions from a qualified retirement
plans or IRA will generally be taxable if a retiree does not roll them over to another IRA or
qualified retirement plan within 60 days. However, the IRS may waive the 60-day requirement if it
would be inequitable or unconscionable not to waive it. The IRS has issued many rulings on the
waiver, including the following:
IRS Rulings Waiving the 60-Day Rollover Requirement. – The IRS waived the 60-day rollover
requirement in each of the following situations:
1. A taxpayer suffering from a death in the family mistakenly deposited a distribution in a non-
IRA account. (Ltr. Rul. 200417034.) The owner of an IRA died within the 60-day period. (Ltr. Rul.
20074207.) The owner missed the 60-day deadline due to the death of her mother-in-law. (Ltr.
Rul. 200716030.)
2. A taxpayer with severe back pain was unable to determine the end of the 60-day period until
shortly after it had expired. (Ltr. Rul. 200451039. Similarly, Ltr. Rul. 200804024.)
3. An IRA trustee failed to retain reinvested funds in the IRA as intended by the taxpayer. (Ltr.
Rul. 200451033.)
4. An unanticipated and unwanted distribution check was lost in the mail. (Ltr. Rul. 200406051.)
5. A credit union ignored taxpayer’s instructions to place his rollover amount in an IRA and
instead invested it in a non-IRA money market account. (Ltr. Rul. 200451040. Similarly, Ltr. Ruls.
200802035 and 200740020.)
6. A credit union gave the taxpayer the wrong date of expiration of the 60-day rollover period –
while the taxpayer was suffering from a severe and painful medical condition. (Ltr. Rul.
200451039.)
7. A retiree received an unanticipated check from his retirement plan five years after retirement
without any explanation of its nature, lost the check, finally determined its nature, and obtained a
replacement check. (Ltr. Rul. 200451038.)
8. The taxpayer arranged for a direct rollover from her employer’s qualified retirement plan to an
IRA at her credit union, but her employer and the credit union failed to consummate the rollover
and instead sent her checks for the rollover amounts. (Ltr. Rul. 200447051.)
9. The taxpayer arranged for a direct rollover of stock from his qualified retirement plan to an
IRA, but his employer sent the stock to the wrong trustee. (Ltr. Rul. 200447041.) A taxpayer's
plan did not supply a timely written explanation of the 60-day rule. (Ltr. Rul. 200714029.) An
employer did not inform the taxpayer that a plan loan had been offset (and the offset could have
been rolled over). (Ltr. Rul. 200752038.)
10. Taxpayer rolled over to an IRA only part of employer stock received from his qualified
retirement plan, but would have rolled over all the stock if he had received correct advice from
his tax advisor. (Ltr. Rul. 200446031.)
11. A financial advisor did not mention the 60-day rule, gave erroneous advice, or completed
incorrect paperwork. (Ltr. Ruls. 200719015, 200804027, and 200715013.)
12. A trustee miscalculated and overpaid a required minimum distribution. (Ltr. Rul.
200725039.)
IRS Rulings Refusing to Waive the 60-Day Rollover Requirement. – The IRS refused to waive
the 60-day requirement in the following situations:
1. A taxpayer who was not familiar with the rollover rules deposited a distribution in a non-IRA
savings account. (Ltr. Rul. 200421003.)
2. An unemployed person used his IRA distribution to pay personal living expenses. (Ltr. Rul.
200417033.)
3. A taxpayer used a distribution as, in effect, a temporary loan to purchase real estate. (Ltr.
Ruls. 200707160 and 200446030.)
4. The taxpayer used an IRA distribution to pay the fees of an attorney who advised her to
request the distribution. (Ltr. Rul. 200452042.)
5. The taxpayer wished to transfer to an IRA some real estate acquired by the taxpayer with
cash distributed from another IRA (a transfer that would not qualify as a rollover even if
consummated within 60 days). (Ltr. Rul. 200647028.)
6. A taxpayer missed the 60-day deadline because of a heavy work load and family demands..
(Ltr. Rul. 200730024.)
See Chapters 3 and 6 of the Guide for discussions of nontaxable rollovers from qualified
retirement plans and IRAs.
No 60-Day Waiver Merely Because Financial Institution Declines to Provide Information. –
The IRS denied a waiver of the 60-day rollover period for a taxpayer who failed to roll over the
cash-out of her individual retirement annuity (IRA), The distribution was prompted by the
statement of her financial institution (the IRA trustee) that she might obtain a better return by
reinvesting. In denying the waiver, the IRS said the financial institution had no obligation to spell
out tax consequences of the distribution and, in this case, the institution represented in writing
that it was not undertaking any such obligation. (Ltr. Rul. 200809043.)
Compare waivers allowed by the IRS due to failure of employers to provide information on
rollover options (since employers have a definite statutory obligation to provide such
information). (I.R.C. § 402(f); Ltr. Rul. 200503035; Ltr. Rul. 200453021.) Compare also waivers
issued for failure to provide information on rollover options by a financial institution or financial
advisor that actually attempted to provide some information on reinvestment considerations.
(Ltr. Rul. 200719015; Ltr. Rul. 200505031.)
See Chapters 3 and 6 of the Guide for discussions of nontaxable rollovers from qualified
retirement plans and IRAs.
Intervening Property Purchase Invalidates Attempted IRA Rollover. – The IRS ruled that the
transfer to an IRA of real estate acquired by the IRA owner with cash distributed from another
IRA could not qualify as a tax-free rollover. The rationale of the ruling would appear to apply to
any property acquired with cash distributed from an IRA. (Ltr. Rul. 200647028.) See Chapter 6 of
the Guide for a discussion of IRA rollovers.
Rollovers of Taxpayer Investment from Qualified Plans to Additional Types of Tax-Favored
Plans. – In the past, a taxpayer could make a trustee-to-trustee rollover of his or her investment
from one qualified plan to another qualified plan only if the recipient plan was a defined
contribution plan that agreed to account separately for the rolled-over investment and related
earnings. After 2006, a taxpayer may also make a trustee-to-trustee rollover from a qualified
plan to a section 403(b) tax-sheltered annuity (TSA), or to another qualified plan even though it is
not a defined benefit plan.
The recipient plan or annuity must provide for separate accounting for the rolled-over investment
and related earnings (both pre-rollover and post-rollover earnings). As in the past, the tax law
treats the amount rolled over as consisting first of earnings before including investment.
(Pension Protection Act of 2006, Pub. L. No. 109-280, § 822(a), (b); I.R.C. § 402(c)(2)(A).) See
Chapter 3 of the Guide for a discussion of rollovers of taxpayer investment in retirement plans.
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Proceeds of Lawsuit Settlement Rolled Over Tax-Free to IRA. – In settlement of a lawsuit, a
taxpayer recovered IRA funds lost through the wrongful actions of the IRA trustee and others.
The IRS ruled the taxpayer could roll the settlement proceeds over tax-free to another IRA. (Ltr.
Rul. 200452053; Ltr. Rul. 200705031.)
However, the IRS denied a rollover for another taxpayer involved in the same settlement
because the taxpayer had rolled over funds from the same IRA within the prior one-year period.
Consequently, the second rollover would violate the rule allowing an owner only one rollover
from the same IRA within a one-year period. (Ltr. Rul. 200452047.) See Chapter 6 of the Guide
for a discussion of nontaxable rollovers from IRAs.
Rollover of Employer Stock Not Reversible. – A retiree inadvertently instructed her qualified
retirement plan to roll over employer stock to her IRA. She had intended instead to take direct
ownership of the stock so she could preserve and defer capital gain tax on its increase in value.
The IRS, however, refused to allow her to ignore the rollover and correct her mistake. (Ltr. Rul.
200442032.) See Chapter 3 of the Guide for a discussion of the distribution of employer
securities from a qualified retirement plan.
60-Day Rollover Period Not Started By Misaddressed Lost Check. – The 60-day period for
rollover of a distribution from a qualified retirement plan to an IRA did not begin running when
the plan sent a check to the taxpayer’s financial advisor at the wrong address and the check
was lost in the mail. Instead, the 60-day period began running when the plan sent a
replacement check. (Ltr. Rul. 200430031.) Similarly, for a distribution check erroneously sent to
the decedent's estate instead of the surviving spouse. (Ltr. Rul 200722031.) See Chapters 3
and 6 of the Guide for discussions of nontaxable rollovers from qualified retirement plans and
IRAs.
IRS May Waive the 60-Day Rollover Requirement. – Distributions from a qualified retirement
plans or IRA will generally be taxable if a retiree does not roll them over to another IRA or
qualified retirement plan within 60 days. However, the IRS may waive the 60-day requirement if it
would be inequitable or unconscionable not to waive it. The IRS has issued many rulings on the
waiver, including the following:
IRS Rulings Waiving the 60-Day Rollover Requirement. – The IRS waived the 60-day rollover
requirement in each of the following situations:
1. A taxpayer suffering from a death in the family mistakenly deposited a distribution in a non-
IRA account. (Ltr. Rul. 200417034.) The owner of an IRA died within the 60-day period. (Ltr. Rul.
20074207.) The owner missed the 60-day deadline due to the death of her mother-in-law. (Ltr.
Rul. 200716030.)
2. A taxpayer with severe back pain was unable to determine the end of the 60-day period until
shortly after it had expired. (Ltr. Rul. 200451039. Similarly, Ltr. Rul. 200804024.)
3. An IRA trustee failed to retain reinvested funds in the IRA as intended by the taxpayer. (Ltr.
Rul. 200451033.)
4. An unanticipated and unwanted distribution check was lost in the mail. (Ltr. Rul. 200406051.)
5. A credit union ignored taxpayer’s instructions to place his rollover amount in an IRA and
instead invested it in a non-IRA money market account. (Ltr. Rul. 200451040. Similarly, Ltr. Ruls.
200802035 and 200740020.)
6. A credit union gave the taxpayer the wrong date of expiration of the 60-day rollover period –
while the taxpayer was suffering from a severe and painful medical condition. (Ltr. Rul.
200451039.)
7. A retiree received an unanticipated check from his retirement plan five years after retirement
without any explanation of its nature, lost the check, finally determined its nature, and obtained a
replacement check. (Ltr. Rul. 200451038.)
8. The taxpayer arranged for a direct rollover from her employer’s qualified retirement plan to an
IRA at her credit union, but her employer and the credit union failed to consummate the rollover
and instead sent her checks for the rollover amounts. (Ltr. Rul. 200447051.)
9. The taxpayer arranged for a direct rollover of stock from his qualified retirement plan to an
IRA, but his employer sent the stock to the wrong trustee. (Ltr. Rul. 200447041.) A taxpayer's
plan did not supply a timely written explanation of the 60-day rule. (Ltr. Rul. 200714029.) An
employer did not inform the taxpayer that a plan loan had been offset (and the offset could have
been rolled over). (Ltr. Rul. 200752038.)
10. Taxpayer rolled over to an IRA only part of employer stock received from his qualified
retirement plan, but would have rolled over all the stock if he had received correct advice from
his tax advisor. (Ltr. Rul. 200446031.)
11. A financial advisor did not mention the 60-day rule, gave erroneous advice, or completed
incorrect paperwork. (Ltr. Ruls. 200719015, 200804027, and 200715013.)
12. A trustee miscalculated and overpaid a required minimum distribution. (Ltr. Rul.
200725039.)
IRS Rulings Refusing to Waive the 60-Day Rollover Requirement. – The IRS refused to waive
the 60-day requirement in the following situations:
1. A taxpayer who was not familiar with the rollover rules deposited a distribution in a non-IRA
savings account. (Ltr. Rul. 200421003.)
2. An unemployed person used his IRA distribution to pay personal living expenses. (Ltr. Rul.
200417033.)
3. A taxpayer used a distribution as, in effect, a temporary loan to purchase real estate. (Ltr.
Ruls. 200707160 and 200446030.)
4. The taxpayer used an IRA distribution to pay the fees of an attorney who advised her to
request the distribution. (Ltr. Rul. 200452042.)
5. The taxpayer wished to transfer to an IRA some real estate acquired by the taxpayer with
cash distributed from another IRA (a transfer that would not qualify as a rollover even if
consummated within 60 days). (Ltr. Rul. 200647028.)
6. A taxpayer missed the 60-day deadline because of a heavy work load and family demands..
(Ltr. Rul. 200730024.)
See Chapters 3 and 6 of the Guide for discussions of nontaxable rollovers from qualified
retirement plans and IRAs.
No 60-Day Waiver Merely Because Financial Institution Declines to Provide Information. –
The IRS denied a waiver of the 60-day rollover period for a taxpayer who failed to roll over the
cash-out of her individual retirement annuity (IRA), The distribution was prompted by the
statement of her financial institution (the IRA trustee) that she might obtain a better return by
reinvesting. In denying the waiver, the IRS said the financial institution had no obligation to spell
out tax consequences of the distribution and, in this case, the institution represented in writing
that it was not undertaking any such obligation. (Ltr. Rul. 200809043.)
Compare waivers allowed by the IRS due to failure of employers to provide information on
rollover options (since employers have a definite statutory obligation to provide such
information). (I.R.C. § 402(f); Ltr. Rul. 200503035; Ltr. Rul. 200453021.) Compare also waivers
issued for failure to provide information on rollover options by a financial institution or financial
advisor that actually attempted to provide some information on reinvestment considerations.
(Ltr. Rul. 200719015; Ltr. Rul. 200505031.)
See Chapters 3 and 6 of the Guide for discussions of nontaxable rollovers from qualified
retirement plans and IRAs.
Intervening Property Purchase Invalidates Attempted IRA Rollover. – The IRS ruled that the
transfer to an IRA of real estate acquired by the IRA owner with cash distributed from another
IRA could not qualify as a tax-free rollover. The rationale of the ruling would appear to apply to
any property acquired with cash distributed from an IRA. (Ltr. Rul. 200647028.) See Chapter 6 of
the Guide for a discussion of IRA rollovers.
Rollovers of Taxpayer Investment from Qualified Plans to Additional Types of Tax-Favored
Plans. – In the past, a taxpayer could make a trustee-to-trustee rollover of his or her investment
from one qualified plan to another qualified plan only if the recipient plan was a defined
contribution plan that agreed to account separately for the rolled-over investment and related
earnings. After 2006, a taxpayer may also make a trustee-to-trustee rollover from a qualified
plan to a section 403(b) tax-sheltered annuity (TSA), or to another qualified plan even though it is
not a defined benefit plan.
The recipient plan or annuity must provide for separate accounting for the rolled-over investment
and related earnings (both pre-rollover and post-rollover earnings). As in the past, the tax law
treats the amount rolled over as consisting first of earnings before including investment.
(Pension Protection Act of 2006, Pub. L. No. 109-280, § 822(a), (b); I.R.C. § 402(c)(2)(A).) See
Chapter 3 of the Guide for a discussion of rollovers of taxpayer investment in retirement plans.
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| Copyright © 2005-2008 by Vorris J. Blankenship All Rights Reserved |
The author intends that this website provide accurate and authoritative information on the subject matter
covered. However, the information provided on this website is not a substitute for the advice of an attorney,
accountant, or other professional; and the author is not offering legal, accounting, or other professional
advice. The material presented on this website is not intended for use, and may not be used, to avoid tax
penalties. If you need legal advice or other professional help, you should seek (from an independent
attorney, accountant, or other competent professional) advice based on your own particular circumstances.
covered. However, the information provided on this website is not a substitute for the advice of an attorney,
accountant, or other professional; and the author is not offering legal, accounting, or other professional
advice. The material presented on this website is not intended for use, and may not be used, to avoid tax
penalties. If you need legal advice or other professional help, you should seek (from an independent
attorney, accountant, or other competent professional) advice based on your own particular circumstances.
Key Tax Developments Affecting Retirees
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