If you have an Individual Retirement Account (IRA), you can withdraw some or all of the money anytime you desire.
However, if you are younger than age 59 1/2, there may be a penalty of 10 percent for “early withdrawal.” The amount you withdraw will also be taxable income in almost every instance.
Congress set a rule that allows you to withdraw IRA money and you will not be taxed on it or pay the early withdrawal penalty, if you put it all back before 60 days from receipt. This is measured from the day the account balance is reduced. It could be the check is mailed to you and you don’t receive it until a few days later. The 60 days “clock” starts the day the account was reduced by the IRA custodian.
Additionally and important to some taxpayers, you can only do the withdrawal and repay once a year. It runs for 365 days from the date of the IRA distribution, not on a calendar year basis.
If you took an IRA distribution Aug. 20, 2014, you must repay it in full, into an IRA account within 60 calendar days to avoid tax and penalty on it. If you do that all timely, then you are not to do another nontaxable IRA distribution and contribution (rollover) until after Aug. 21, 2015.
The correct term is really “IRA Distribution/Contribution” not rollover. The usual way to change where your IRA is invested is called “Trustee to Trustee Transfer.” Custodian A sends the money to Custodian B directly, you don’t touch the money. You just authorize the transfer.
IRS publications can be helpful. Publication 590, Individual Retirement Arrangements gives a lot of information about IRAs. You can get that publication by going to the IRS website, IRS.gov, and selecting “Forms and Publications.”
If you have a temporary need of some money, say $15,000, and your best source is your IRA, it is OK to do a withdrawal or distribution. But to avoid the tax and the possible early withdrawal penalty, be sure to put the entire amount back into the IRA before 60 days has passed. Watch carefully to see if the distribution is net of income tax withholding. Suppose the broker held out $1,500 for income tax withholding and you only received a check for $13,500. Now you need to pay $15,000 back before 60 days are up.
There are many court cases on this issue. Usually the IRS will only give relief if the extreme cases, i.e. broker mistakes, life threatening illnesses, etc.
Did you hear? “Patting a fellow on the back is the best way to get a chip off of his shoulder.”
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.