Can I ask the IRS to allow me to return an IRA distribution after the 60 day rollover period?

Over a telephone conversation with my financial institution, I collected information about taking a distribution from my IRA with the intention to return it as may be allowed by the rules. My understanding then was that the period to keep the money out is three months, and if the money is returned after three months but before end of 2019, it will have to go to a new IRA account. But if the money is returned after December 31, 2019, I will have to pay the due taxes. I was unemployed and the money was needed to create a job for me working as handyman flipping houses. The plan worked, I am now fixing a house with the hope to sell it with profit. I received the money on June 13, but when I tried to return it on July 7, my financial institution advised me over the phone that I missed the 60-day deadline, and if I attempt to return the $50,000, the IRS will force me to take all my IRA savings out in one shot and pay the taxes as a penalty for breaking the rules.

My hope is that I safely communicate with the IRS and have them accept that I rollover the money back to a traditional IRA account. Please note that I reviewed all IRS rules about taking out and returning the rollover IRA distribution, including self-certification and its 11 reasons, paying the IRS $10,000 for waiver request, Announcement 2014-32 and Rev. Proc. 2016-47. My only hope is to contact the IRS to accept my reasons, which are ignorance of the rules and weakness of the English language understanding over-the-phone communications. I know that I should have read the written rules instead of just depending on info from a phone conversation. Please note that if I keep the $50,000, I would be considered too wealthy in the eyes of the ACA health insurance marketplace, and they will deny supporting me with tax credit. I will have to pay back about $6,000 for the past 7 months of supported health insurance.

Joshua Escalante Troesh is the #1 ranked financial advisor by the Investopedia audience.*

Joshua Escalante Troesh is the #1 ranked financial advisor by the Investopedia audience.*

Yes, there is potential for relief from the IRS, but ignorance of the rules and weakness in English are most likely going to get denied. At this point you will want to contact a financial advisor and a CPA to help you with this. The CPA will help you in dealing with the IRS and a good financial advisor will help you establish the IRA in the appropriate way.

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Make sure, however, not to do anything until the CPA says to do it. The CPA should take charge, and the financial advisor should be there as the investment and account opening support.

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It seems you might also be getting some bad advice from the financial institution your IRA was with. Based on the dates you listed (June 13 you receive the distribution, and July 7 you attempt to deposit) you are still within the 60-day window. In fact, less than 30 days have elapsed.

Another wrinkle is since you got a check from your IRA, your financial institution most likely took an additional $13,000 of your IRA money and sent it to the IRS per the rules. So in the eyes of the IRS, you will have to pay back $63,000 and not just $50,000. To avoid all penalties, you would need to deposit all of that money, not just the amount the original check was for. Again, something the financial advisor and the CPA will help you sort out, but you should be prepared to come up with some extra money.

This is a great example of why a person should always have a professional help them with financial decisions. You seem like a very intelligent person, and the fact you looked up IRS announcements and revenue procedures demonstrates your intelligence. But the rules are so complicated and difficult to understand it is really easy to get messed up.

Joshua Escalante Troesh is a Tenured Professor of Business and works with people across the country as a fiduciary & fee-only financial planner. To explore working with him on your personal financial planning and investment advising needs, simply schedule a free Discover Meeting.

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