Long overdue – IRS finally gives taxpayers partial relief from 60-day rollover pitfalls

By Tom Bassett, J.D., CPA Vice President, Tax Manager East Region - The Commerce Trust Company

September 22, 2016

As head of The Commerce Trust Company's East Region tax group, Tom Bassett uncovers helpful strategies and shares his perspective on preparing for next year's taxes.*

The Internal Revenue Service (IRS) doesn't often give us "presents," but a gift horse is always a welcome development.

Late last month, the IRS issued Revenue Procedure 2016-47 – which takes the sting out of missing the usual 60-day deadline you have available to roll over funds from one IRA to another.

Under the previous rules, if you receive funds from an IRA and want to "roll over" those funds to another IRA, you had 60 days to complete the rollover. Missing that deadline could drive harsh consequences – usually that makes the funds taxable to you, plus potentially a 10% "penalty" tax.

The IRS had traditionally required taxpayers seeking relief from that deadline to undergo a lengthy and expensive process of requesting a Private Letter Ruling (PLR). Costs vary, but getting a lawyer to draft a PLR request and successfully argue your case with the IRS could cost upwards of $25,000.

As a result, late 60-day PLR requests were only practical for wealthy retirement account owners where the stakes were really high on mistakes involving large attempted rollovers.

Now the IRS will allow taxpayers to "self-certify" the reason for their missing the deadline – and the new IRA custodian/trustee is directed to rely on that "self-certification," as long as it meets certain requirements.

Your failure to complete the rollover in the 60 days must be due to one of 11 listed facts outside of your control. They include the following:

  1. An error was committed by the financial institution receiving the contribution or making the distribution to which the contribution relates;
  2. The distribution, having been made in the form of a check, was misplaced and never cashed;
  3. The distribution was deposited into and remained in an account that the taxpayer mistakenly thought was an eligible retirement plan;
  4. The taxpayer's principal residence was severely damaged;
  5. A member of the taxpayer's family died;
  6. The taxpayer or a member of the taxpayer's family was seriously ill;
  7. The taxpayer was incarcerated;
  8. Restrictions were imposed by a foreign country;
  9. A postal error occurred;
  10. The distribution was made on account of a levy under ยง 6331 and the proceeds of the levy have been returned to the taxpayer; or
  11. The party making the distribution to which the rollover relates delayed providing information that the receiving plan or IRA required to complete the rollover despite the taxpayer's reasonable efforts to obtain the information.

Under the Revenue Procedure, the IRS is not giving you carte blanch to do a late rollover – they reserve the right, under audit, to review your certification. If they discover an error, the IRS can declare the entire attempted rollover invalid. This could result in additional income taxes owed and possibly the 10% penalty tax, plus potentially another penalty for making an excess contribution to the (new) retirement account.

The Revenue Procedure contains other information that needs to be included in the self-certification, but if you fail to deposit the funds into a rollover IRA for one of the 11 reasons listed above, you should contact your tax professional immediately to see if you can take advantage of Revenue Procedure 2016-47. Due to the potential for penalties if you don't meet the criteria, this isn't really a "do it yourself" certification, regardless of what the IRS has called it.

Note that pages 5 and 6 of the Revenue Procedure provide a sample "certification" letter to be completed by the taxpayer. Remember that there can be no prior denial by the IRS for a waiver and you can only do one IRA-to-IRA or Roth IRA-to-Roth IRA 60-day rollover in a 12-month period.

You can get further detail on the 11 different acceptable scenarios in the Revenue Procedure on this IRS website link: https://www.irs.gov/pub/irs-drop/rp-16-47.pdf.

Disclosures
  • * Always consult with your CPA and professional advisor on matters involving income taxes.
  • Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of Sept. 22, 2016. This summary is intended to provide general information only and is reflective of the opinions of the Tax Group.
  • This material is not a recommendation of any particular security, is not based on any particular financial situation or needs, and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional. Diversification does not guarantee a profit or protect against all risk.
  • Commerce does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to any product and specific financial situations.
  • Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
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Considerations before Buying a Second Home | The Commerce Trust Company

Considerations Before Buying a Second Home

By Ryan Fleming Relationship Manager - The Commerce Trust Company

May 24, 2017

Background

It is estimated that between 6 and 10 percent of homes in the United States are second homes. If you are considering buying a second home, now could be a good time to take the leap with interest rates still near historic lows. Ryan Fleming, a Commerce Trust Private Banking Relationship Manager in Bloomington, Ill., discusses some common considerations for second-home buyers.

Q. Ryan, what are some of the pros and cons of a second home?

A second home purchase can fulfill a lifelong dream or become a nightmare. Many buyers can avoid the nightmare scenarios by making a balanced and informed decision.

The downside of buying a vacation home is that you will have two of everything – mortgages, property tax bills, water bills, fuel bills, etc. It also means additional responsibility for repairs and general upkeep.

At the same time, owning a second home can be very rewarding in tangible and intangible ways. It can be the source of relaxation, a place to get closer to your family or to engage in your passions or hobbies. It can also generate income if you choose to make it an investment property.

Q. What should a potential second-home buyer consider before making a purchase?

Think about your goals for the property. Do you want to buy a vacation home that will one day become the place you retire to, and perhaps even pass on to your children? A second home for vacations is very different from an investment property that you buy to generate income. That difference can affect your taxes and the insurance coverage you will need.

Many second-home buyers rent out the property part of the year to offset their expenses. There are different tax rules depending on how much you use the property for personal or rental use. There are many more considerations that are best explored with your accountant or financial advisor.

Q. Good tip. What else?

Take a look at the numbers. Consider whether you can afford to take on a second mortgage, plus insurance, maintenance, repairs, furnishings, and property-management fees, if you choose. Prices can vary greatly by region. Developing communities are less expensive than established vacation hot spots. An experienced real estate professional can help.

Q. What about getting a mortgage on a second home?

An experienced banker can be invaluable in helping to understand the costs of purchasing a second home and the loan options available to you. They can look at your current financial situation and the property you want to purchase, and advise you on what type of loan you may be eligible for. A banker can also help you get prequalified or preapproved for a loan before you start looking at properties, so you know what you can afford to buy.

Q. Any final thoughts?

Before searching for a second home, it is important to clearly define your goals for the home – whether it is a retirement destination, an investment property, or used for other purposes. Next, build your team of professionals, including a banker, tax advisor, and real estate agent who can help you navigate the process. Remember that purchasing a second home is a big decision that should be made carefully, and in the context of your total financial life. So be sure to include your financial advisor or planner.

Takeaways:

  • Think about your goals for the property. A second home for vacations is very different from an investment property that you buy to generate income.
  • Consider whether you can afford to take on a second mortgage, plus insurance, maintenance, repairs, furnishings, and property-management fees.
  • An experienced banker can be invaluable to understand the costs of purchasing a second home and the loan options available to you.

About the author - Ryan Fleming

Ryan Fleming

Ryan is a private banking relationship manager for The Commerce Trust Company. As a member of the private client team and an experienced, tenured private banker, he and his dedicated client support staff are responsible for ensuring each client's experience with Commerce Trust exceeds expectations. Ryan's specific responsibilities include management of our clients' day-to-day banking, cash management, and credit needs, while also helping them navigate the wide array of our financial services to find the solutions that best fit their needs. Prior to joining Commerce Trust in 2013, Ryan was a branch manager for Commerce Bank in Champaign. Ryan has a bachelor of science degree in agribusiness, farm, and financial management from the University of Illinois.

Disclosures
  • Past performance is no guarantee of future results, and the opinions and other information in the commentary are as of May 24, 2017. This summary is intended to provide general information only and is reflective of the opinions of The Commerce Trust Company.
  • This material is not a recommendation of any particular security, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified attorney, tax advisor or investment professional. Diversification does not guarantee a profit or protect against all risk.
  • Commerce does not provide tax advice or legal advice to customers. Consult a tax specialist regarding tax implications related to any product and specific financial situation.
  • Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.
Connect with Commerce Trust
Contact us to learn more about how our approach might fit with your financial situation.
Learn more

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