IRS waives the 60-day deadline to roll over a 401(k) and IRA distribution after a serious illness

Plain-English summary

When you take money out of a 401(k) or an IRA, you normally have 60 days to put it into another retirement account, or the distribution becomes taxable income. A taxpayer here missed that 60-day window on both a 401(k) distribution and an IRA distribution. She had a serious health condition that had led to repeated hospitalizations, and the loss of her spouse (who had managed her finances) worsened her situation. The IRS has statutory authority under sections 402(c)(3)(B) and 408(d)(3)(I) to waive the 60-day deadline when enforcing it would be against equity or good conscience, including cases of disability or hospitalization. Finding the medical documentation consistent with her account, the IRS granted the waiver. She now has 60 days from the ruling to complete the rollovers, and if she does, the distributions will not be taxed as income.

Ruling snapshot

• Question: Should the IRS waive the 60-day rollover deadline for a 401(k) and an IRA distribution the taxpayer failed to roll over on time because of a serious illness?
• Outcome: Approved (waiver granted)
• Key authorities: IRC §§ 402(c) and 408(d)(3); §§ 402(c)(3)(B) and 408(d)(3)(I) (waiver authority); Rev. Proc. 2003-16

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service

Tax Exempt and Government Entities
IRS Employee Plans

February 9, 2022

Uniform Issue List: 408.03-00

Number: 202218028 402.00-00

Release Date: 5/6/2022

Legend
Taxpayer A =
Plan B =
IRA C =
Financial Institution D =
Amount 1 =
Amount 2 =
Date 1 =
Date 2 =
Date 3 =
Date 4 =

Dear

This is in response to your letter dated October 12, 2021, as supplemented by
correspondence dated February 2, 2022, submitted on your behalf by your authorized
representative, in which you request a waiver of the 60-day rollover requirement
contained in sections 402(c) and 408(d)(3) of the Internal Revenue Code (the "Code").

You submitted, under penalties of perjury, the following facts and representations in
support of your ruling request.

Taxpayer A represents that she received a distribution from her 401(k) plan, Plan B,
equal to Amount 1. Taxpayer A also represents that she received a distribution from IRA
C, equal to Amount 2. Taxpayer A asserts that her failure to accomplish a rollover within
the 60-day period prescribed by sections 402(c) and 408(d)(3) of the Code was due to a
serious medical condition that impaired her ability to manage her financial affairs and
accomplish timely rollovers.

Taxpayer A suffers from a serious health disorder that was first diagnosed in
20 . Over the years, Taxpayer A has been hospitalized several times for her condition.
Taxpayer A's spouse managed Taxpayer A's finances until he passed away in 20 . The
loss of her spouse compounded Taxpayer A's mental health struggles and, in 20
Taxpayer A withdrew from the workforce due to her declining health.

Plan B and IRA C are maintained by Financial Institution D on behalf of Taxpayer A.

On Date 1, Taxpayer A withdrew Amount 2 from IRA C. On Date 2, soon after she
withdrew Amount 2, Taxpayer A was again hospitalized. On Date 3, Taxpayer A withdrew
Amount 1 from Plan B. By Date 4, after the expiration of the 60-day period, Taxpayer A
had recovered enough from her illness to ask for help with her finances and
submit this ruling request. Taxpayer A provided medical and other documentation in
support of this request.

Based on the above facts and representations, Taxpayer A requests that the Service
waive the 60-day rollover requirement under sections 402(c) and 408(d)(3) of the Code
with respect to the distribution of Amount 1 from Plan B and the distribution of Amount 2
from IRA C, respectively.

Section 402(c) 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 includible 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. An individual retirement
account (IRA) constitutes one form of eligible retirement plan.

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.

Section 408(a) of the Code defines an individual retirement account to mean a trust
created or organized in the United States and requires that the trustee be a bank or an
approved non-bank trustee.

Section 408(d)(1) of the Code provides that, except as otherwise provided in section
408(d), 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.

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

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

(i) the entire amount received (including money or 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

(ii) 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 408(d)(3)(B) of the Code provides that the rollover provisions of section 408(d)(3)
do not apply to any amount received by an individual from an IRA if at any time during the
1-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 that was not includible in gross
income because of the application of the rollover provisions in section 408(d)(3).

Section 408(d)(3)(I) of the Code provides that the Secretary of the Treasury may waive
the 60-day requirement under sections 408(d)(3)(A) and 408(d)(3)(D) 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.

Section 3.02 of Revenue Procedure 2003-16, 2003-4 I.R.B. 359 ("Rev. Proc. 2003-16"),
provides that the Internal Revenue Service (the "Service") will issue a ruling waiving the
60-day rollover requirement in cases 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 taxpayer. In determining whether to grant a waiver of the
60-day rollover requirement pursuant to sections 402(c)(3)(B) and 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.

The information presented and documentation submitted by Taxpayer A are consistent
with her assertion that the failure to accomplish a rollover within the 60-day period was
due to a serious medical condition that impaired her ability to manage her financial affairs
and accomplish timely rollovers.

Therefore, pursuant to sections 402(c)(3)(B) and 408(d)(3)(I) of the Code, the Service
hereby waives the 60-day rollover requirement with respect to the distributions of Amount
1 from Plan B and Amount 2 from IRA C. Taxpayer A is granted a period of 60 days from
the issuance of this ruling letter to contribute Amount 1 and Amount 2 into an IRA or other
eligible retirement plan. Provided all other requirements of sections 402(c)(3) and
408(d)(3), except the 60-day requirement, are met with respect to such contributions, the
contributions of Amount 1 and Amount 2 to an IRA or other eligible retirement plan will be
considered a valid rollover contribution within the meaning of sections 402(c)(3) and
408(d)(3), respectively.

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 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.

Pursuant to a power of attorney on file with this office, copies of this letter ruling are being
sent to your authorized representative.

If you wish to inquire about this ruling, please contact at

Please address all correspondence to

Sincerely,

Sherri M. Edelman, Manager
Employee Plans Technical Group 1

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

cc: