Roth IRA Distribution
I have a business client who is cash strapped right now. He wants to take a distribution from his Roth-IRA to pay some bills because he hopes to have the cash to put the money back in within the next month or so once some of his receivables come in. He asked me what costs are penalties are associated with doing this. He is 36. Any guidance would be great. Thanks.
Permalink Submitted by Alan Spross on Tue, 2009-06-23 20:08
FIrst, he should be sure he is eligible for a 60 day rollover from the Roth. He cannot have rolled over funds to or from this account in the last 12 months or he is not eligible for another rollover within that period. Otherwise, there is no tax or penalty if he rolls the funds back within 60 days of his distribution. He would report this as a rollover on line 15 of his 1040.
Even if he is not able to roll the funds back, the distribution may well be tax and penalty free, since Roth distributions come first from his balance of regular Roth contributions in his account, and those come out tax and penalty free. If he has only conversions in his Roth, there is a 10% penalty if the funds in the oldest conversion have not been held for 5 years.