IRS waives 60-day deadline for rollover made by SEP-IRA to correct RMD error made due to erroneous financial advice

In a private ruling, the IRS has waived the 60-day rollover rule where a taxpayer rolled over a distribution from a SEP-IRA to an employer plan in order to satisfy the required minimum distribution (RMD) requirement for the plan. The taxpayer’s failure to accomplish a timely rollover was due to erroneous advice received by the taxpayer from his financial advisor.

The taxpayer maintained balances in three retirement accounts: an employer plan, a SEP-IRA, and a traditional IRA. The taxpayer attained age 70 1/2 in January 2012. In accordance with the RMD rules under Code Sec. 401(a)(9), the taxpayer was required to take a first RMD from the three plans either by December 31, 2012 or by April 1, 2013. He decided to take his first RMD in 2012.

The taxpayer was advised to calculate the RMDs separately for each plan. However, the financial advisor erroneously advised the taxpayer that all of the RMDs could be taken from a single plan. Based on this advice, the taxpayer requested that all three RMDs be taken from his SEP-IRA. The amounts were distributed in January, February, and May 2012 and deposited into a taxable account.

In September 2012, the administrator of the employer plan informed the taxpayer that he was required to take an RMD from that plan. At that point, the taxpayer became aware that the RMD from the SEP-IRA incorrectly included the RMD amount attributable to the employer plan. Thus, in October 2012, the taxpayer rolled funds from the taxable account to the employer plan and in December that amount was distributed from the plan as the RMD for 2012.

The taxpayer sought a waiver of the rule requiring that rollovers be made within 60 days of the distribution.

Under Rev. Proc. 2003-16, in determining whether to grant a waiver of the 60-day rollover rule, the IRS will consider all relevant facts and circumstances including errors committed by a financial institution. The information presented and documentation submitted by the taxpayer “is consistent with his assertion that his failure to accomplish a timely rollover was due to a mistake by [the financial advisor]” which resulted in the amount being distributed from the SEP-IRA in error, the IRS concluded. The financial advisor acknowledged that the advice given was erroneous.

Accordingly, the taxpayer’s request for a waiver of the 60-day rollover rule was granted.

Source: IRS Letter Ruling 201406023.

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