When you change a job or go through a divorce, you may need to rollover the money in your retirement account. Make a small mistake and you could end up with an unplanned tax bill.
There is a general 60-day limit for rolling funds into a different retirement plan or an individual retirement account (IRA). In the past, if you missed this window, you would have to go through the hassle of requesting a waiver to avoid penalties. The IRS recently announced a new procedure that will help.
The self-certification procedure is detailed in a document posted on IRS.gov. Some of the mitigating factors that allow you to use the new procedure include:
- A misplaced distribution check
- Severe damage to your home – for example, the recent severe flooding in Louisiana
- The death of a family member or a serious illness
After missing the 60-day time limit, you would need to notify the IRS of the circumstances. The IRS will generally accept that your self-certification is truthful and issue a waiver.
The general rule is that you can only complete one IRA rollover per year. A mistake with this rule opens you to unplanned tax consequences such as added income and a 10 percent early withdrawal tax.
Direct trustee-to-trustee transfers are recommended by the IRS to avoid these types of problems in the first place.
If you have questions about the tax consequences of a retirement account rollover, contact a tax attorney. Fixing a simple mistake often requires patience and professional assistance.