IRS Waives 60-day Rollover Rule for Individual Immersed in Caring for Spouse

In a private letter ruling, IRS has waived the 60-day rollover requirement for an individual who withdrew funds from his IRA but didn't timely roll them over into another IRA because he was totally immersed in caring for his spouse.

Background. There is no immediate tax if distributions from an IRA are rolled over to an IRA or other eligible retirement plan (i.e., qualified trust, governmental Code Sec. 457 plan, Code Sec. 403(a) annuity and Code Sec. 403(b) tax-shelter annuity). For the rollover to be tax-free, the amount distributed from the IRA generally must be recontributed to the IRA or other eligible retirement plan no later than 60 days after the date that the taxpayer received the withdrawal from the IRA. (Code Sec. 408(d)(3)) A distribution rolled over after the 60-day period generally will be taxed (and also may be subject to a 10% premature withdrawal penalty tax). (Code Sec. 72(t)) Only one tax-free IRA-to-IRA rollover per IRA account can be made within a one-year period. (Code Sec. 408(d)(3)(B) )

IRS may waive the 60-day rule if an individual suffers a casualty, disaster, or other event beyond his reasonable control, and not waiving the 60-day rule would be against equity or good conscience (i.e., hardship waiver). (Code Sec. 408(d)(3)(I))

IRS will consider several factors in determining whether to waive the 60-day rollover requirement, including time elapsed since the distribution, inability to complete the rollover due to death, disability, hospitalization, incarceration, restrictions imposed by a foreign country, postal error, errors committed by a financial institution, etc. (Rev Proc 2003-16, 2003-1 CB 359)

Facts. An individual, whom we'll call Andrew, received a distribution form his IRA and failed to roll it over within 60 days. He asserted that the failure was due to the medical condition of his spouse, Betty, and his duties as her caregiver.

Andrew initially placed the amount withdrawn from the IRA into a non-IRA account. His intention was to roll over the funds to another IRA to achieve a higher rate of return.

RIA observation: Although it is not crystal clear, it appears that the IRA was invested in a certificate of deposit, which had matured, and that Andrew planned to transfer the amount withdrawn to another financial institution offering a higher yield.

Before and during the rollover period, Andrew's spouse, whom we'll call Betty, experienced numerous medical problems, requiring hospitalization and Andrew's full-time service as her primary caregiver. She was diagnosed with an aggressive disease and underwent several operations and therapy. He mental and physical condition deteriorated significantly requiring around-the-clock care by Andrew until she died.

Andrew claimed that his primary caregiver duties increased during the 60-day rollover period resulting in his inability to properly attend to his financial affairs. Eleven days after the 60-day period expired, Andrew transferred the amount withdrawn from the IRA to another qualified IRA account.

Waiver granted. IRS observed that Andrew had provided documentation showing that, at the time of the IRA distribution, his mental and emotional condition was seriously affected by Betty's terminal condition and having to provide around-the-clock care for her. The documentation showed that she had been treated for physical and mental health conditions for some time and that these health conditions increased in severity just before and during the 60-day rollover period. It also showed that the effects of Betty's long standing physical and mental health conditions restricted Andrew's ability to handle his financial affairs.

IRS concluded that the information presented and the documentation submitted by Andrew was consistent with his assertion that his failure to accomplish a timely rollover was due to Betty's medical condition, and his duties as her caregiver, which impaired his ability to accomplish a timely rollover.

Therefore, pursuant to Code Sec. 408(d)(3)(I), IRS waived the 60-day rollover requirement. Assuming all other requirement are met, IRS will treat the late contribution as a rollover contribution.

RIA observation: As the population grays, it is becoming increasingly more common for individuals to be caretakers for their spouses who may be suffering from dementia, other cognitive impairments, and/or physical ailments. While the typical caretaker may not face the extreme burdens that Andrew encountered, he or she often will be faced with dauntless tasks that can sidetrack him or her from personal responsibilities including completion of a timely IRA rollover. If that should happen, a waiver should be sought. As was done in the ruling, details should be provided on the spouse's condition and the effect it had on the caretaker IRA-owner.