60 Day Put Back Apply to Roths
If a client takes money out of his Roth IRA can he then put the money back into the Roth as long as he does it within the 60 days? I know this rule applies to Traditional IRAs, but am uncertain about Roths. If he takes out $100,000 but within the 60 days can only put $50,0000 of it back in, can he do this? Assuming he is under 59 1/2 and his cost basis was $50,000 will he then owe any taxes and penalties since he put the earnings back in and only took out his cost basis?
Thanks,
Todd
Permalink Submitted by Alan Spross on Fri, 2009-12-11 23:50
The rollover rules for a Roth distribution are the same as for a TIRA.
In your example, the rollover is permitted as long as it does not violate the one rollover per 12 month rule. A reportable distribution of 50,000 would remain. If his regular contributions equalled or exceeded 50,000 the distribution would be tax and penalty free, but would still need to be reported on Form 8606.
If some of that 50,000 were from conversions made within the last 5 years, there would be a 10% early withdrawal penalty on the taxable portion of those conversions. Ordering rules apply to the 50,000. First dollars are applied to regular contributions, then conversions starting with the oldest with the taxable portion of each year’s conversions applied before any tax free portion. Earnings are last.
There are some complex exceptions if this situation involved the 10,000 first home purchase that would be treated as qualified.