Can you put your contributions back if you withdraw early?

[Guest jalkelly]

To keep the numbers simple lets say that for '06 and '07 I contributed the max of 4k. If I decided to take out the 8k, can I re-contribute those years at some point? Meaning at the end of '08 could I put that 8k back in, in addition to the 5k I am allowed for '08? Thanks for the help!

[John G]

You can redeposit all the funds if 60 days have not elapsed. You can make contributions now if you are eligible for 2008. An interesting question for our message board accountants - - can you contribute again for 2007 since the window for contributions is still open if you originally funded 2007 and then withdrew the funds? I don't know the answer to that possibility.

FYI to others contemplating withdrawals from a Roth: Think twice. A Roth is your personal tax shelter and it doesn't work if the funds are not left inside to compound. With so many sources of inexpensive capital (mulla) - home equity loans, signature lines of credit, internal family loans, home refinancing, initial zero cost credit cards, etc. - think about your other options before tapping the Roth. It is often a better idea to seek other sources, or perhaps defer the expense (or pay it over time) rather than tapping the Roth.

[Guest jalkelly]

You can redeposit all the funds if 60 days have not elapsed. You can make contributions now if you are eligible for 2008. An interesting question for our message board accountants - - can you contribute again for 2007 since the window for contributions is still open if you originally funded 2007 and then withdrew the funds? I don't know the answer to that possibility.

FYI to others contemplating withdrawals from a Roth: Think twice. A Roth is your personal tax shelter and it doesn't work if the funds are not left inside to compound. With so many sources of inexpensive capital (mulla) - home equity loans, signature lines of credit, internal family loans, home refinancing, initial zero cost credit cards, etc. - think about your other options before tapping the Roth. It is often a better idea to seek other sources, or perhaps defer the expense (or pay it over time) rather than tapping the Roth.

Thanks for the quick reply. Are there any exceptions to this rule? For instance, I read somewhere that you can withdraw up to 10k from a 401k for the downpayment to purchase your first home. You are then able to pay it back over a period of time. Is there anything similar with a Roth? Thanks again!

[Appleby]

... An interesting question for our message board accountants - - can you contribute again for 2007 since the window for contributions is still open if you originally funded 2007 and then withdrew the funds? I don't know the answer to that possibility...

No. That would create an excess contribution.

An exception would apply if the amount had been removed as a return of excess, along with any net income attributable. But that is not the case here (based on the information presented).

Thanks for the quick reply. Are there any exceptions to this rule? For instance, I read somewhere that you can withdraw up to 10k from a 401k for the downpayment to purchase your first home. You are then able to pay it back over a period of time. Is there anything similar with a Roth? Thanks again!

No. This exception (which is a loan), does not apply to IRAs.

An exception applies to qualified reservists who are called to active duty, that would allow a re-contribution of withdrawals within certain period.

[Bird]

QUOTE (jalkelly @ Feb 3 2008, 11:05 PM) *

Thanks for the quick reply. Are there any exceptions to this rule? For instance, I read somewhere that you can withdraw up to 10k from a 401k for the downpayment to purchase your first home. You are then able to pay it back over a period of time. Is there anything similar with a Roth? Thanks again!

No. This exception (which is a loan), does not apply to IRAs.

I thought the $10,000 withdrawal for first home DOES apply to IRAs, and NOT 401(k)s. That is, you can withdraw (not borrow) $10,000 from an IRA, penalty-free, for the "first-time" purchase of a home. You may borrow from a 401(k) (or other employer plan) and pay it back - IF the plan permits. The plan may have restrictions on the purpose of the loan or it may not, or it may not permit loans at all.

[Appleby]

Bird, you are right that the first time homebuyer exception applies to an IRA and not a 401(k).

I think the poster is looking for the extended repayment feature that applies to a loan from a 401(k), and as you know, a loan cannot be made from an IRA... and distributions must be rollover over ( re-deposited) within 60-days in most cases.

So, my modified response …

For IRAs, you can withdraw any amount at anytime. If the amount is rolled over within 60-days (assuming it is rollover eligible), the amount is tax-free and penalty-free.

If the IRA distribution is used towards a first-time home, the 10% penalty does not apply. This is limited to $10,000 (this may be where the poster got the $10,000 from).

For 401(k) plans ( and other non-IRA employer sponsored plans), the participant may borrow the lesser of $50,000 or 50% of his or her vested balance. However, a participant may be able to borrow up to $10,000, even if 50% of the vested balance is less than $10,000 [ this could also be where the poster got the $10,000 from, especially given the extended repayment period) . This loan may be repaid over five years. The repayment period may be longer if the loan is used for a principal residence. Of course, as Bird explained, the availibility of the loan depends on plan provisions.

[Guest razorslug]

Reading this thread got me thinking about a solution to my current situation. I want to see if anyone can tell me if it will or won't work.

Just to start, I'm 26 grad student, and basically I'm using student loans to fund my retirement. (The loans have a locked low interest rate, Paying them off on time should build some credit. And basically all I"m doing is forcing my self to invest in my retirement when I have to pay back the loans.) I opened a 2007 Roth IRA with Fidelity and maxed it out, 4k. No one should be suprised that my Roth IRA is now worth closer to 3k. I want to transfer the fidelity Roth IRA to my bank because I get a better banking situation and more options with the IRA.

Reading this thread got me thinking.

Can I.... Take all of the money out of the Fidelity account paying the 10% penalty (there are no earning just losses, so no taxes)

Open a new 2007 Roth IRA with my bank and fund it with 4k. (Or is there a way I can just transfer the 3k from fidelity to my the new Roth IRA with the bank and top it off to 4k?) And if the answer is there is no way I can get that extra 1k back in my 2007 Roth, I'll just let the bank do a transfer.

And of course once all that is done I'll start making contributions for the 2008 Roth.

Thank you.

-slug

[John G]

I am surprised you want to move the funds from Fidelity. They have a huge array of investment choices. Don'

t be too concerned about 4K dropping to 3K - you can get short term variations like this. Banks tend to have a lot of very conservative investment choices and often these carry higher fees, annual expenses or loads. I say "tend" because banks are used to pitching the "guarenteed" CD. You are investing for decades and should be heavily leaning towards equities (aka stocks). Read the fine print or your bank offerings.

You can leave the Fidelity stuff in place and open a second set of Roths at your bank.... although you might have low balance fees and certainly more stuff to track.

There is no reason to close your existing Fidelity account and pay a 10% penalty. If you went that route, you would never get to redeposit those funds. You can do a custodian to custodian transfer. The new custodian will handle the paperwork. Fidelity will charge you an account closing fee, which the new custodian may or may not reimburse. (you need to ask for reimbursement)

You can not "top off" your prior investment to get you back to 4,000.

Again, I am not sure you made a very convincing case for moving the money out of Fidelity. Your decline in value is due to a combination of the choices you made and the short term market flucuations. You could have just as easily seen a decline in the investments at any other custodian. If anyone is suggesting that you can avoid losing money in an investment, they are either blowing smoke in your eyes or recommnending something way to conservative for a 20 something.