How to Replace a Withdrawal From an IRA

When you open an IRA and create a retirement savings plan, the theory is that IRA money will remain in the account until at least retirement age. In fact, the Internal Revenue Service has structured a penalty program to discourage any other circumstance. Despite your best intentions, however, you might end up withdrawing IRA funds early -- that is, before age 59 1/2 -- perhaps to weather a period of unemployment or cover an unexpected expense. The IRS lets you recover from this action without penalty as long as you meet a certain deadline.

Step 1

Check the distribution rules for your IRA. All traditional IRA withdrawals are subject to ordinary income tax. In addition to that tax, if you withdraw money from a traditional IRA before reaching age 59 1/2, you will owe a 10 percent penalty on top of the income tax. For Roth accounts, if you are not yet 59 1/2 and your account is less than five years old, distributions of earnings from your Roth are similarly subject to a 10 percent penalty as well as income tax. If you, as a Roth owner, are not yet 59 1/2 and your account is at least five years old, you pay a penalty only on earnings distributions. If you replace less in traditional IRA funds or Roth IRA earnings than you withdrew, you will have to pay any applicable tax and/or penalty on the amount you failed to redeposit. Similarly, if you do not replace all withdrawn funds by the deadline date, your distribution will be subject to tax and/or penalty, depending on the type of IRA and the timing of the withdrawal.

Step 2

Check to see how much you withdrew. You must return to the account all the money you took out. If you return less than you withdrew, the amount you do not replace is subject to tax, penalty or both. The specific consequences depend on the type of IRA you own and the timing of the withdrawal.

Step 3

Look at the calendar. You have 60 calendar days from the date you received the distribution to return the funds to the IRA. Return the funds early, if possible. If you wait until the 60th day to return the money there's always the chance an error will occur and your deposit will not be posted timely.

Step 4

Put the money back in the account and confirm that the transaction has posted by the 60th day.

Tip

  • Roth IRA owners can withdraw contributions at any time for any reason without tax consequences. Penalties only apply when you withdraw earnings from a Roth.
  • The IRS considers it a rollover when you remove and then return funds to an IRA. You can only effect one rollover per IRA account in a 12-month period.

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