PLR 200421006: Late IRA rollover relief excludes the required distribution

Plain-English summary

A retired, legally blind IRA owner withdrew more than the required minimum distribution after misunderstanding the amount due. The excess was placed in a credit union money market account. Her son tried to help her roll it into an IRA, but military duty interrupted that effort and the 60-day deadline passed. The IRS waived the deadline for the part of the withdrawal eligible for rollover, expressly excluding amounts that had to be distributed under the required minimum distribution rule. It gave her 60 days from the ruling letter to complete a rollover, subject to the other requirements.

Ruling snapshot

• Question: Could the excess IRA withdrawal be rolled over after the normal 60-day deadline?
• Outcome: Approved for the eligible portion, with 60 days from the letter to act.
• Key authorities: IRC §§ 408(d)(3)(I), 401(a)(9), 402(c)(4); Rev. Proc. 2003-16.

Full text (IRS public release)

DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE 200421006
WASHINGTON, D.C. 20224

TAX EXEMPT AND FEB 23 2004

GOVERNMENT ENTITIES
DIVISION

Uniform Issue List: 408.03-00 T. EP: RA: T4

Legend:
Taxpayer =

Bank IRA =

Credit Union =
Amount E =
Amount F =
Amount G =
Month A =
Month B =
Date H =

Date I =

Date J =

Date K =

Age X =

200421006

Page 2

Dear Taxpayer:

This letter is in response to a ruling request submitted by you dated in which you request a waiver of the 60-day rollover requirement contained in section 408(d)(3) of the Internal Revenue Code (“Code”).

The following facts and representations have been submitted under penalty of perjury in support of the ruling requested:

You are a retired individual, who is Age X, legally blind and has a number of health problems. In early Month A, you received a letter from Bank IRA regarding the necessity of your taking a required minimum distribution from your IRA account, and information regarding the tax consequences of that distribution. Because of your misunderstanding of the amount of the required minimum distribution that was necessary, you took a distribution of Amount E from your IRA on Date H. Amount G of that distribution represented the required minimum distribution.

On Date I, you deposited Amount F (Amount E minus Amount G ) in a money market account at the Credit Union. In Month B, you received a Form 1099-R from Bank IRA regarding your withdrawal of funds from your IRA account. Subsequently, on or about Date J, which was within the 60-day period, your son, who assists you in handling your financial matters, discovered the IRA withdrawal and its deposit into the money market account. He attempted to correct this by having you roll Amount F into an IRA at the Credit Union, but was called away on military duty before you could complete the rollover. However, when you attempted to rollover these IRA funds over (on Date K), the sixty day period under section 408(d)(3) of the Code had already expired, and Credit Union personnel would not permit the rollover.

Based on the above facts and representations, you request that the Internal Revenue Service waive the 60-day rollover requirement with respect to the distribution of Amount E, because the failure to waive such requirement would be against equity or good conscience.

Section 408(d)(1) of the Code provides that, except as otherwise provided in section 408(d) of the Code, any amount paid or distributed out of an IRA shall be included in gross income by the payee or distributee, as the case may be, in the manner provided under section 72 of the Code.

Section 408(d)(3) of the Code defines, and provides the rules applicable to IRA rollovers.

200421006

Page 3

Section 408(d)(3)(A) of the Code provides that section 408(d)(1) of the Code does not apply to any amount paid or distributed out of an IRA to the individual for whose benefit the IRA is maintained if —

(1) the entire amount received (including money and any other property) is paid into an IRA for the benefit of such individual not later than the 60th day after the day on which the individual receives the payment or distribution; or,

(2) the entire amount received (including money and any other property) is paid into an eligible retirement plan (other than an IRA) for the benefit of such individual not later than the 60th day after the date on which the payment or distribution is received, except that the maximum amount which may be paid into such plan may not exceed the portion of the amount received which is includible in gross income (determined without regard to section 408(d)(3)).

Section 402(d)(3)(B) of the Code provides that section 408(d)(3) does not apply to any amount described in section 408(d)(3)(A)(i) received by an individual from an IRA if at any time during the one-year period ending on the day of such receipt such individual received any other amount described in section 408(d)(3)(A)(i) from an IRA which was not includible in gross income because of the application of section 408(d)(3).

Section 408(d)(3)(D) of the Code provides a similar 60-day rollover period for partial rollovers.

Section 408(d)(3)(I) of the Code provides that the Secretary may waive the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) of the Code 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. Only distributions that occurred after December 31, 2001, are eligible for the waiver under section 408(d)(3)(I) of the Code.

Revenue Procedure 2003-16, 2003-4 I.R.B. 359, provides that in determining whether to grant a waiver of the 60-day rollover requirement pursuant to section 408(d)(3)(I) of the Code, the Service will consider all relevant facts and circumstances, including:

(1) errors committed by a financial institution; (2) inability to complete a rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, or postal error; (3) the use of the amount distributed (for example, in the case of payment by check, whether the check was cashed); and, (4) the time elapsed since the distribution occurred.

200421006

Page 4

The information you presented demonstrates that you did not understand the minimum distribution required as of Date H, and erroneously withdrew Amount E from your IRA and deposited Amount G into a money market account, instead of not taking that amount, or rolling it over into another IRA or eligible retirement plan within 60 days of the distribution. Furthermore, you needed the assistance of your son to complete the rollover transaction. The failure to deposit Amount E into an IRA within the 60-day period was beyond your reasonable control and the failure to waive the 60-day requirement would be against equity or good conscience.

Therefore, pursuant to section 408(c)(3)(I) of the Code, we waive the 60-day rollover requirement with respect to the part of Amount E that constitutes an eligible rollover distribution pursuant to section 402(c)(4) of the Code. An eligible rollover distribution can consist only of pre-tax amounts and earnings and does not include after-tax employee contributions or distributions required by section 401(a)(9) of the Code. You are granted a period of 60 days from the issuance of this ruling letter to make your rollover. If all other requirements of section 408(d)(3) of the Code (except the 60-day requirement) are met with respect to such contributions, this amount will be considered rollover contributions within the meaning of section 408(d)(3) of the Code.

No opinion is expressed as to the tax treatment of the transaction described herein under the provisions of any other section of either the Code or regulations that may be applicable thereto.

This letter is directed only to the taxpayer who requested it. Section 6110(k)(3) of the Code provides that it may not be used or cited as precedent.

If you wish to inquire about this ruling, please contact I.D. #

Sincerely yours

Donzell Littlejohn, Manager
Technical Group 4

Employee Plans

Enclosures:
Deleted copy of ruling letter
Notice of Intention to Disclose