Roth IRA distributions

[Guest Bobem]

New to this board - I meet all criteria for Roth withdrawals. Q.?- Can you withdraw funds and at a later date put some or all of these funds back into the Roth? I may need to use some of the funds for an urgent yet temporary purpose. Did not find info in IRS publications.

[John G]

Three responses:

1. If you are talking about contributory Roths, there is no criteria associated with contributions. You can withdraw contributions at any time without penalty. Conversion assets have different rules. Note that EARNINGS may be taxed and have a penalty depending upon your age and if you can qualify for certain purposes like home buying.

2. Money is on sale. You can get credit cards for short term expenditures that often will not charge any interest for 3-12 months. Home equity loans, signature loans, tax return advances, borrowing from a relative, etc. are some of the short term options. Get creative - for example... your parents probably have money in bank accounts earning 1.8 to 2.5%. Make them a better deal and be the good son/daughter.

3. While I do not recommend this, you can take money out of a Roth or IRA and redeposit it within 60 days. The catch is that if you fail to get the money back in on time you trigger all the penalties and taxes. I believe this was intended to be a mechanism for taking a check when you relocate, but since all custodians can do a custodian to custodian transfer virtually no one uses this option.

[ElGuapo]

3.  While I do not recommend this, you can take money out of a Roth or IRA and redeposit it within 60 days. . . . I believe this was intended to be a mechanism for taking a check when you relocate, but since all custodians can do a custodian to custodian transfer virtually no one uses this option.

Right. I've heard of people using this 60-day rollover provision as a way to borrow their IRA money and then put it back with the same custodian. Not a direct violation of the rule but certainly not what it was intended for. Anyone know if the IRS has taken a stand about this? I can't imagine them looking favorably on it if it's clear there was no intention of moving the money to another custodian.

[jevd]

There has never been a problem with this practice. In fact, several years ago there was a PLR addressing the issue of redepositing IRA funds back in the same institution they were withdrawn from. The IRS doesn't care as long as you follow the rules. See publication 590 on rollovers from one IRA to another.

[John G]

Perhaps I should not have speculated on why the 60 day rule was added. It does not matter why as long as you follow the rule of redepositing into a like IRA/Roth somewhere, either the same custodian or other. TY - "intent" or "uses" are not part of the IRS code on the 60 day removal/redeposit option.

In a era of zero interest credit cards, signature lines of credit, ready reserve checking, home equity loans, etc. it is hard to imagine a huge demand for a short term loan. One thing we have seen on this message board a few times is problems when folks intended to redeposit the funds in 60 days.... they forgot, the custodian on the back-end failed to complete the transaction, checks that did not clear, bad tax advice (from employees warned by supervisors against giving tax advice), misunderstandings of the 60 day rule, problems coming up with the full amount, withholding issues, and general Murphy's law and all of the correlaries.

The 60 day option is NOT recommended. Keep you life simple and stay away from this Roth/IRA option.