withdrawal and redeposit in same year for income shifting?

[Guest retro]

My specific situation is with respect to a Keogh plan but I understand these issues are the same as for a traditional IRA.

Situation:

I am over 60.

Last year I had high income from my consulting business.

I deferred filing my 2009 return with a 6-month extension.

I can deposit to the Keogh account, deferring 2009 taxes on the deposited amount, any time before I file the 2009 return.

This year to date I have had no income.

The question:

Can I

1) withdraw an amount from the Keogh plan,

2) pay (low) 2010 taxes on the withdrawn amount,

3) then redeposit some or all of it in the same Keogh plan, and

4) thereby avoid paying the (high) 2009 taxes on the deposited amount?

I understand that I could use the rollover provisions of the law to avoid paying tax on the withdrawn amount if I redeposit cash, but must I do so?

[Ron Snyder]

Can I

1) withdraw an amount from the Keogh plan,

If the plan allows either in-service distributions or you are beyond the retirement age.

2) pay (low) 2010 taxes on the withdrawn amount,

Yes.

3) then redeposit some or all of it in the same Keogh plan,

Also yes.

and 4) thereby avoid paying the (high) 2009 taxes on the deposited amount?

And yes.

I understand that I could use the rollover provisions of the law to avoid paying tax on the withdrawn amount if I redeposit cash, but must I do so?

Your partial distribution may not be eligible for rollover treatment.

I also am over 60 and have taken plan distributions and made plan contributions in the same year. At the least, it saves payroll taxes on the amount funded and withdrawn.