Return a previous withdrawal back to ROTH IRA.

Gary

I withdrew a sum of money from a Roth IRA last spring and now would like to return the funds back to the Roth IRA. The funds I withdrew were from my investment in the Roth. So I should not be subject to the 10% penalty. I have not reviewed the Roth IRA rules for some time. So was wondering if there have been any changes that would allow a redeposit of funds in this ROTH.

Your help or suggestions would be appreciated.
Thanks
Gary

Derf

From Zack's:
60-Day Rule - In and Out

The IRS allows you to borrow money from your Roth (or traditional) IRA without consequences as long as you replace the funds within 60 days of receiving them. The action is considered as a rollover, in this case, from one account to the same account. You can only undertake this rollover once per calendar year per account. So, if you own six Roth IRAs, you can borrow from each one -- abiding by the 60-day rule -- once every 12 months.
Derf

davidrmoran

your institution should be able to advise?
if not, if you feel the need to confirm Derf / Zack's response (sounds right to me), search within kitces or thomas (fairmark), probably kotlikoff has something on this too

AndyJ

The 60d rollover rule changed in 2015: it's now one per year, period, no matter how many accounts you own.

For the OP, if you're beyond the 60 days or have already done a rollover within the last year, I'm not familiar with what you can do, but nothing beats getting to know the IRA rules directly from the source.

The relevant publication, Pub 590 on all things IRA, has been split into 590-A, Contributions, and 590-B, Distributions, which you can download from the IRS site or request as paper copies by mail.

msf

AndyJ is essentially correct; the Zack's information is outdated.

I'm a strong advocate of going to the source. However, the "rule" was no rule at all, but a proposed IRS regulation - having no force of law, just providing clues as to how the IRS would treat your rollovers. Here's one of the clearest discussions of proposed regs vs. final regs vs tax code (statutues) I've seen. It's from CCH and was written for accountants, not lawyers, so it does a good job at clarifying the law.

Tax Research: Understanding Sources of Tax Law
Subtitled: Why my IRC [statutes] beat your Rev Proc [IRS regs]!

In this case, the underlying statute (IRC 408(d)(3)(B)) was clear: if you have done a 60 day rollover within a year, you can't do another tax-free 60 day rollover of money from any IRA. The court ruling picked up on this wording. The IRS has put its own erroneous spin on the statue for years. It's been writing this into Pub 590 and letting people get away with it.

I'm wondering if there is still a loophole. The new IRS regs (and existing statutes) allow any number of rollover conversions, i.e. taking money from traditional IRAs, holding the money for up to 60 days, and then depositing it into Roth IRAs as conversions. All these serial Roth conversion could be recharacterized to traditional IRAs (and thus avoid taxes) so long as they were recharacterized prior to the tax filing deadline (including extensions).

So it seems you can do multiple 60 day rollover conversions, and ultimately get the money back where it came from. This isn't quite as flexible as the old 60 day bucket brigade (rolling over the same money from IRA to IRA), but it still have the effect of getting you access to some amount of money for an indefinite period of time (rather than 60 days per year).

As to extensions of the 60 day restriction, here's the IRS FAQ page on waivers (doesn't seem to help Gary):
https://www.irs.gov/retirement-plans/retirement-plans-faqs-relating-to-waivers-of-the-60-day-rollover-requirement

Derf

msf: I've been under the impression that if you take a direct payment 20 % will be held for taxes. That is why direct transfers ,rollovers are done.
Derf

msf

Direct payments from employer-sponsored plans (401(k), etc.) are subject to the 20% withholding. Direct payments from IRAs are not.

See IRS: Rollovers of Retirement Plan and IRA Distributions.
https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-plan-and-ira-distributions#anch_49

Since the question was about Roths, this raises an interesting question. Is there a 20% withholding on Roth employer distributions? The answer (per IRS) appears to be no. 20% withholding applies only to the untaxed portion of the rollover.

Gary

Thanks for input and reference material links. Still researching options. Also this is in no way was a rollover action in terms of pensions. It was an outright withdrawal of funds from a ROTH IRA. It was funds I had invested and paid taxes on - which is proper by the rules as I know them. Now I want to put the borrowed funds back.

Thanks to all!!

Gary

AndyJ

Just a quick note, Gary - the reason the 60d rollover got into the conversation is that if you were within the 60 days and hadn't done one in a year, you could simply redeposit the $ you took out of your Roth and call it a rollover, with no consequences whatsoever.

Gary

Right now I have had the money out 138 days. There is probably little hope to get it back in from what I have researched.

Thanks

Gary

msf

Not likely you did this, but if you made a separate Roth contribution within the 60 day window, you could call that a rollover of the money you withdrew. That would let you make a "contribution" with some or all of the money you withdrew (subject to contribution limits).

Gary

I will have to map out exactly what I did when I get a chance.

Thanks for the Idea

Gary