Understanding an IRA Investment

ira investment

Most of us that own an Individual Retirement Account (IRA) understand that we are allowed to roll over money from one IRA to another without tax liability as long as the roll over is completed within 60 days. Unfortunately, if the roll over, for argument sake, takes place on the 61st day we will incur a taxable distribution and most likely an additional penalty assessed on the not so timely roll over.

For good reason, the Internal Revenue Service will consider a late transfer a non-taxable distribution and will waive the additional penalty. Here are two real life situations where the Internal Revenue Service deemed the late transfer reasonable and did not consider the tardy transfer a taxable distribution.

Sam Taxpayer (fictitious name) decided to transfer his IRA from one institution to another by check. Unfortunately for Mr. Taxpayer, he was hospitalized before he could complete the transfer within the required 60 day period and died while in the hospital. Mr. Taxpayer’s executor subsequently requested that the Internal Revenue Service waive the 60 day rule so that the transfer to the new IRA could be completed.

Mary Taxpayer had an IRA certificate of deposit mature at her local bank. She was going to invest the proceeds of the matured IRA certificate in another IRA she owned. Mary was the sole caregiver for her husband who, during the 60 day period, suffered a heart attack as well as a series of seizures and a stroke. The last thing on Mary’s mind was financial matters. To make matters worse her daughter took ill, was hospitalized and died during this time. When things settled down Mary requested to Internal Revenue Service that they waive the 60 day rule.

In private letter rulings, the IRS granted both requests. Factors other than medical developments that come into consideration when the Internal Revenue Service is determining whether to waive the 60 day rule are postal errors, errors by a financial institution, what was done with the money, and how much time elapsed since the IRA withdrawal.

Please keep in mind the waiver is not guaranteed and does not apply to required minimum distribution amounts.

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About Ira Brower

I have been in the financial service industry for more than 40 years primarily providing wealth management solutions for retired and soon-to-be retired individuals. I am President and Founder of Garden State Trust Company. Our clients depend on us for elder care solutions, such as; trust and estate planning, investment services, and lifestyle management. We also administer to “special needs” or “supplemental needs” trusts. www.gstrustco.com

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