Custodian error supports post-death plan rollover waiver

Plain-English summary

A retired plan participant elected a direct rollover to an IRA but died eleven days later. The plan custodian instead deposited funds into the personal representative's checking account, and the rollover amount remained liquid and unused elsewhere. The IRS found that the missed 60-day deadline resulted from custodian error and granted 60 days to contribute up to the eligible amount to a rollover IRA in the decedent's name, assuming state law authorized the representative to act. The ruling also stated that a beneficiary later named by the representative would not be a designated beneficiary under section 401(a)(9), so the rollover IRA would have no designated beneficiary for those rules.

Ruling snapshot

• Question: May a decedent's personal representative complete a late rollover after the plan custodian failed to make the requested direct rollover?
• Outcome: Approved
• Key authorities: IRC §§ 401(a)(9), 401(a)(31), 402(c); Treas. Reg. §§ 1.401(a)(31)-1, 1.401(a)(9)-4; Rev. Proc. 2003-16

Full text (IRS public release)

201535025

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

TAX EXEMPT AND
GOVERNMENT ENTITIES

DIVISION
JUN 01 2015
U.I.L. 402.08-00
XXXXXXXXXXXXXXXX

T:EP:RA:T3
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXX
Legend:
Decedent A = XXXXXXXXXXXXXXXXX
Taxpayer B = XXXXXXXXXXXXXXXXX
Plan X = XXXXXXXXXXXXXXXXX
IRA Y = XXXXXXXXXXXXXXXXXF
Company C = XXXXXXXXXXXXXXXXX

Financial institution D = xxxxxxxxxxXxxXxXxX

Financial Institution E = xxxxxxxxxxxxxxXxXx

Bank F = XXXXXXXXXXXXXXXX
State M = XXXXXXXXXXXXXXXX
Amount 1 = XXXXXXXXXXXXXXXX
Amount 2 = XXXXXXXXXXXXXXXX
Date 1 = XXXXXXXXXXXXXXXX
Date 2 = XXXXXXXXXXXXXXXX

Date 3 = XXXXXXXXXXXXXXXX

2

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Dear XXXXXXXXXXXXX:

This letter is in response to your request dated July 10, 2014, as supplemented
by correspondence dated December 8, 2014, February 4, 2015, and April 23,
2015, submitted on your behalf by your authorized representative, in which you
request a waiver of the 60 day rollover requirement contained in section
402(c)(3) of the Internal Revenue Code (the “Code”).

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

Taxpayer B represents that Decedent A requested a direct rollover of Amount 2
from Plan X into IRA Y with Company C. Taxpayer B asserts that Decedent A’s
failure to accomplish a rollover within the 60-day period prescribed by section
402(c)(3) of the Code was due to the custodian of Plan X, Financial Institution D,
not making a trustee-to trustee transfer of Amount 2 into IRA Y.

Upon his retirement, on Date 1, Decedent A executed a distribution form from
Plan X and elected a trustee-to-trustee transfer of Amount 2 into IRA Y. Eleven
days after completing the distribution form, on Date 2, Decedent A passed away.
On Date 3, Financial Institution D deposited Amount 1 into Taxpayer B’s
checking account at Bank F. Taxpayer B represents that Amount 2 has not been
used for any other purpose and remains in an account with Financial Institution E
where Amount 2 is fully liquid and available to be rolled over.

Based on the foregoing facts and representations, you request that the Internal
Revenue Service waive the 60-day rollover requirement contained in section
402(c) (3) of the Code with respect to Amount 2.

Section 402(c)(1) of the Code provides that if any portion of the balance to the
credit of an employee in a qualified trust is paid to the employee in an eligible
rollover distribution, and the distributee transfers any portion of the property
received in such distribution to an eligible retirement plan, and in the case of a
distribution of property other than money , the amount so transferred consists of
the property distributed, then such distribution (to the extent transferred) shall not
be included in gross income for the taxable year in which paid. Section
402(c)(3)(A) states that such rollover must be accomplished within 60 days
following the day on which the distributee received the property.

Section 402(c)(8)(B) of the Code provides that an eligible retirement plan
includes (i) an eligible retirement account described in section 408(a), (ii) an
individual retirement annuity described in section 408(b) (other than an
endowment contract), (iii) a qualified trust, (iv) an annuity plan described in
section 403(a), (v) an eligible deferred compensation plan described in section
457(b) which is maintained by an eligible employer described in section
457(e)(1)(A), and (vi) an annuity contract described in section 403(b).

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Section 402(c)(4) of the Code provides that an eligible rollover distribution shall
not include any distribution to the extent such distribution is required under
section 401(a)(9) of the Code.

Section 402(c)(3)(B) of the Code provides, in relevant part, that the Secretary
may waive the 60-day requirement under section 402(c) 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 402(c)(3)(B) of the Code.

Section 401(a)(31) of the Code provides the rules for governing “direct transfers
of eligible rollover distributions”.

Section 1.401(a)(31)-1 of the Income Tax Regulations, Question and Answer-15,
provides, in relevant part, that an eligible rollover distribution that is paid to an
eligible retirement plan in a direct rollover is a distribution and rollover, and not a
transfer of assets and liabilities.

Rev. Proc. 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 402(c)(3),
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.

The information presented and documentation submitted by Taxpayer B is
consistent with her assertion that Decedent A’s failure to accomplish a rollover
within the 60-day period was due to the custodian of Plan X, Financial Institution
D, not making a trustee-to-trustee transfer of Amount 2 into IRA Y as Decedent
A had requested.

Assuming that Taxpayer B, as personal representative of Decedent A’s estate, is
authorized under the laws of State M to complete a rollover of the distribution of
Amount 2, pursuant to section 402(c)(3) of the Code, the Service hereby waives
the 60-day rollover requirement with respect to the distribution of Amount 2 from
Plan X. Taxpayer B is granted a period of 60 days from the issuance of this letter
ruling to contribute an amount not more than Amount 2 into a rollover IRA in the
name of Decedent A. Provided all other requirements of section 402(c)(3), except
the 60-day requirement, are met with respect to such contribution, the
contribution of Amount 2 will be considered a rollover contribution within the
meaning of section 402(c)(3) .

4

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However, it is noted that, to the extent that you, as executor and sole beneficiary
of Decedent A’s estate, name a beneficiary of the IRA, section 1.401(a)(9)-4,
Q&A-4, of the Regulations provides that a designated beneficiary must be a
beneficiary as of the date of death. The Service will not treat any beneficiary
named by you, as personal representative of Decedent A’s estate, as a
designated beneficiary under section 401(a)(9). Thus, for purposes of section
401(a)(9), the rollover IRA will have no designated beneficiary.

This ruling does not authorize the rollover of amounts that are required to be
distributed by section 408(a)(6) of the Code.

In addition, the scope of Taxpayer B’s authority as personal representative of
Decedent A’s estate is a matter governed by state law. This ruling assumes
Taxpayer B’s actions as personal representative of Decedent A’s estate relevant
to the ruling request contained herein are in accordance with the laws of State M.

No opinion is expressed as to the tax treatment of the transactions described
herein under the provisions of any other section of either the Code or regulations,
which 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.

A copy of this letter is being sent to your authorized representative pursuant to a
Power of Attorney on file with this office.

If you have any questions concerning this letter, please contact xxxxxXxxxXxXXxx,
XXXXXXXXXXXXXXX, at XXXXXXXXXXXXXXX. All correspondence should be addressed
to SE:T: EP: RA:T:2.

Sincerely yours,

[signature]

Sherri M. Edelman, Manager
Employee Plans Technical Group 2

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

XXXXXXXXXXXXXXXXX