IRA distribution question
I have a client that took a premature IRA distribution of $8k he had 20% federal tax withheld. He has received the check but no longer needs to use the money, how does he put that money back into the IRA. I am well aware of the 60 day rule but I don’t understand how to he can recoup the 20%, if that is even possible, that he paid federal tax on.
Permalink Submitted by Alan - IRA critic on Thu, 2013-11-14 20:24
He would have to replace the withholding from his other funds in order to have a complete rollover. The withholding will of course be credited against his 2013 income tax bill. He could also reduce other withholding right away to effectively recover the money sooner than waiting for a tax refund.
Permalink Submitted by Eric Woodfill on Thu, 2013-11-14 20:27
The 20% that was withheld can be used as a tax credit when he goes to file his 2013 taxes?
Permalink Submitted by Alan - IRA critic on Thu, 2013-11-14 20:42
Yes. it is like any other withholding and reported on line 62 of the 1040 along with any wage withholding. Total withholding from all sources is subtracted from the tax liaibility and taxpayer pays the difference. If withholding exceeds the tax liability taxpayer gets a refund.
Permalink Submitted by Eric Woodfill on Thu, 2013-11-14 20:49
Thank you