If you withdraw money from your retirement account but later decide you don't need the distribution, you might be able to put it back in your retirement account if you act fast enough through a rollover. The Internal Revenue Service calls the process of taking money out of a retirement account and putting it back in a rollover, even if it goes back into the same retirement account. However, you're limited to how often you can take advantage of this grace period.
You generally have 60 days from the date you receive the distribution from the plan to redeposit it as a rollover. As long as you redeposit the money into the same retirement account or another qualified retirement account within the grace period, you won't owe the taxes or penalties. However, if you don't roll over the money in time and don't get receive a special waiver from the IRS, you'll owe income taxes on the distribution and, unless you're 59 1/2 years old, an additional 10 percent tax penalty. When you redeposit the money, you have to return the same amount withdrawn, including any taxes withheld, not just the amount you received. For example, if you requested a $20,000 distribution but received a check for $18,000 because $2,000 was withheld for income taxes, you would have to redeposit $20,000 to complete the rollover. If you only redeposited $18,000, you'd have to treat the remaining $2,000 as a permanent distribution.
The 60-day grace period can be extended under certain circumstances. It is automatically extended if the financial institution receives the money within 60 days, you followed the financial institution's rules for depositing the money, the money was not deposited solely because the financial institution made an error, the money does get deposited within one year of the end of the 60-day grace period and if the financial institution had not made the error it would have been a valid rollover. You must meet all of the conditions to receive the automatic waiver. If you don't qualify for an automatic waiver, you can apply for a hardship waiver. The IRS considers whether the financial institution made errors, whether you didn't complete the rollover within the 60-day grace period because of death, disability, being in prison or overseas or an error by the post office, whether you used the money, such as cashing the check, and how much time has passed. For example, if you didn't complete the rollover in time because you had a heart attack two days after you took the distribution and were incapacitated for three months, you'd probably qualify. However, if you just forgot to redeposit, you won't get a waiver.
Once Per Year
You're limited to using the 60-day grace period to roll over one distribution per account during a 12-month period. For example, if you replaced a distribution from your traditional IRA in May and then took another distribution from that same account in October, you wouldn't be able to roll over that distribution back into the IRA. However, if you took the distribution from your 401(k) plan and you hadn't rolled over a distribution from that account in the past 12 months, you could redeposit that distribution into your 401(k) plan.
For certain distributions from your retirement accounts, you can't use the 60-day grace period because you cannot roll them over into another retirement plan, no matter how fast you redeposit the money. For example, you can't put back required minimum distributions from the plan or distributions that are part of a series of substantially equal payments. You also can't put back hardship distributions or distributions of dividends from employer securities taken from employer-sponsored plans. Finally, you can't put back corrective distributions, which are distributions taken to fix excess contributions.
Even though you won't owe any taxes if you complete the rollover within the 60-day grace period, you still have to report it on your income taxes. Using either Form 1040 or Form 1040A, report the amount of the distribution as a nontaxable IRA distribution or nontaxable pension distribution. Then, assuming you returned the entire amount within 60 days, report $0 for the taxable IRA distribution or pension distribution and write "rollover" next to it to let the IRS know what you did. Finally, if your financial institution withheld any money, include that amount as part of your taxes withheld for the year.
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