Roth individual retirement accounts let you save after-tax money for retirement. If you take non-qualified distributions from a Roth IRA, you might owe taxes on the withdrawal. But if you then found you didn't need the money, you could roll over the distribution if you acted quickly enough. The Internal Revenue Service would treat this as if you'd never taken out the money.
Taxable Roth Distributions
Only nonqualified distributions are Roth IRAs taxable income, because qualified distributions come out tax-free. For distributions to be qualified, your Roth IRA must be at least 5 years old and you must be at least 59 1/2, permanently disabled, or taking out up to $10,000 to buy a first home. Before taking a nonqualified distribution, you remove all your contributions tax-free. Only after you've removed all contributions do you take out earnings. When you do, those count as taxable income if the distribution is nonqualified. If you inherit the Roth IRA, it must have been open at least five years before the decedent died.
Usually, you're allowed to roll over your Roth IRA distributions as long as the money gets back into an eligible account within 60 days. However, you're allowed to roll money from a Roth IRA only into another Roth IRA, or back into the Roth IRA that the money came from. As long as you finish the rollover, you don't owe any taxes. But you do need to report the rollover on your tax return, just to give the Internal Revenue Service a heads-up on what you did.
Distributions taken to remove excess contributions and the income on those excess contributions, or required minimum distributions, can't be rolled over no matter how fast you move to redeposit the money. For example, say you put $1,000 more than your contribution limit in your Roth IRA, and when you went to correct it, it had grown to $1,200. The $200 of earnings would be a taxable distribution that you couldn't roll over, even if you put it back within 60 days.
Once Per Year
You can roll over a distribution from a Roth IRA only once per year, per account. For example, if you took a distribution from your Roth IRA on Aug. 1, 2013 and rolled it over, any distribution taken from the same Roth IRA before Aug. 1, 2014 couldn't be rolled over. But if you had a second Roth IRA, you could roll over a taxable distribution from that account regardless of when you rolled over money from the first account.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."