Waiver of IRA 60 day rollover requirement: Pain of Divorce is worse than House Fire

Section 408 (d)(1) of the Code provides that any amount distributed from an IRA shall be included in gross income by the distributee.  An exception to this rule is set forth in  Sec 408 (d)(3)(A)  which provides that the inclusion of income is not applicable to any amount paid into an eligible retirement plan, including another IRA, within 60 days of receiving the distribution.  This law should not be viewed as a trap for the unwary, but rather a severe warning to taxpayers to pay attention, and have a well thought out plan, when withdrawing funds from any qualified retirement plan or IRA.  Withdrawals should only occur after much discussion and reliance on financial, legal and accounting professionals. Do not simply rely on the bank employees or other custodian to protect your interests.  Sometimes waivers from the IRS are obtained for those who violate the rule, and put the funds back within a short time after the 60 day grace period has elapsed.  Recently, in PLR 2011 30013, a waiver of the 60 day rollover rule was allowed where the spouse of the Taxpayer had instituted divorce proceedings after his withdrawal from his IRA and placement into another non IRA account; he reportedly suffered severe emotional distress, depression and insomnia after being served with divorce papers.

Contrast that ruling to the very next case heard with the same issue.  In PLR 2011 30014 the IRS refused to grant a waiver of the 60 day rule where the Taxpayer had withdrawn funds in the form of a short term loan from his IRA which was used to pay personal living expenses after he lost his job and his house burned to the ground. He repaid the IRA once he received money from the insurance company.  The only lesson here is never withdraw funds from a qualified plan or IRA unless the taxpayer is well aware of the income inclusion rules.  If a rollover is contemplated it would be wise to use a trustee to trustee exchange of funds.

Joseph Henninger
josh.henninger@wnhplaw.com
Probate Attorney
Board Certified Specialist in Estate Planning & Probate Law
www.charlotteestatelaw.com
Wishart Norris Henninger & Pittman, P.A.
Charlotte North Carolina

Danica Little
danica.little@wnhplaw.com
Probate Attorney
Board Certified Specialist in Estate Planning & Probate Law
www.charlotteestatelaw.com
Wishart Norris Henninger & Pittman, P.A.
Charlotte North Carolina



 
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