IRS waived 60-day IRA rollover rule for distressed spouse
TAX ALERT |
Taxpayers generally have 60 days to roll individual retirement account (IRA) balances into another IRA or eligible plan to defer paying tax on the distribution. In PLR 201606032, the IRS waived this requirement for a taxpayer whose husband died untimely and the rollover window was missed due to the spouse being emotionally overwhelmed dealing with his estate.
The IRS’s authority to waive this requirement in certain circumstances is provided in section 408(d)(3)(l) and explained in Rev. Proc. 2003-16. A waiver following death is not especially uncommon as the survivors generally are emotionally distraught and have many items to handle in respect of the decedent. The rollover, however, must meet all of the other requirements for the rollover to be valid after the waiver is granted.
This ruling is a reminder of one such other requirement. The decedent’s Last Will and Testament caused the IRA balance to be transferred to a trust following his death. The surviving spouse ultimately rolled the decedent’s IRA balance from this trust into her own IRA, albeit outside of the 60-day window. Generally, IRA proceeds received from a trust are not eligible for rollover as they are received from a trust and not directly from the decedent. This rule applies when the spouse is a beneficiary of the trust. However, in this ruling, the spouse was the trustee of the trust and had sole discretion to pay the IRA proceeds to herself under the trust terms.
Under these terms providing sole authority over the trust assets, the IRS ruled that the surviving spouse could have directly rolled the funds from the decedent’s IRA to her own IRA. Therefore, after the IRS granted a waiver for the 60 day window that was missed, if all other requirements were met, the rollover would not be taxed as a distribution.