Can Funds Be Taken Out and Put Back in a Roth IRA?

The Roth IRA is a highly flexible retirement vehicle, intended to encourage working Americans to save and invest for their later years. However, life happens. You may find that you need to tap into Roth funds before you reach retirement age. Borrowing from a Roth is subject to time restrictions.

Withdrawal of Contributions

The IRS allows Roth IRA owners to withdraw contributions at will. There are no age or time restrictions on taking out the principal amount. This feature is more than convenient. Sincere though you may be in your drive to save, you may from time to time need to get at your Roth principal. No penalty, excise or ordinary income tax restrictions stand in your way.

Earnings Withdrawal

Relative to earnings on your Roth monies, the IRS imposes strictures. To withdraw earnings free of tax and penalty, your Roth must have been open for at least five years. In addition, you must have reached the age of 59 1/2. If you have met neither of these conditions when you make an earnings withdrawal, the IRS will impose both ordinary income tax and a 10 percent penalty on the amount distributed. If you have reached age 59 1/2, but the account has not been open for at least five years, you will owe only ordinary income tax.

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.

Missed Deadline Consequences

Missing the 60-day deadline is not to be taken lightly. You will not be able to return the money to the account, and you may also be taxed on the withdrawal. If you keep the funds out of the account for more than 60 days, the withdrawal is considered as a distribution. Once again, if it consists only of principal, there will be no tax consequences. However, if the withdrawal includes earnings and you have not yet reached age 59 1/2, you'll have to pay income tax, plus a 10 percent penalty on the money. If you have already contributed the yearly maximum to your Roth and you miss the 60-day rollover deadline, you cannot put the money back into your Roth as a contribution. The IRS will not allow you to exceed the contribution limit for the year.