60 days short term with draw Roth

Submitted by Narayan Baral on Tue, 2019-04-30 23:45

I am buying a house (2nd-time primary house). I need money for closing. I have no way to get money from other sources. I plan to take out from my Roth account ( only contributed amount over the years approx $33,000 (again just the contribution not the growth). Can I use it and put it back (same $33,000 or less) within 60 days. Can I put in the same account or I have to roll over to another new Roth account? How 60-day rule applies here? What is the consequence if I do not put it back?
Thanks
Narayan



Submitted by Alan - IRA critic on Wed, 2019-05-01 00:37

  • You are only allowed one IRA rollover in a 12 month period. If you rolled over any distribution in the last 12 months, you cannot take another distribution until that 12 months has expired. And if you are in the clear and do this rollover, you cannot do another one for the next 12 months.
  • If for whatever reason you cannot get that money back into your Roth within 60 days, it will be permanently distributed and lost from your retirement funds. And real estate is the most risky reason because all sorts of things can happen which delays a closing or causes transactions to fall out. You will not be able to get time extension from the IRS either. 
  • If you complete the rollover, you will have to report the distribution and rollover on Form 1040, lines 4a and 4b. You will get a 1099R for the distribution. If you are late, you would just report the distribution but there would be no rollover. You would report this distribution on Form 8606 and would need to know your Roth IRA basis to enter on line 22. As long as the distribution is less than your basis, it is non taxable but will still be lost from your Roth.
  • The rollover can be deposited in the same or a different Roth account as a rollover contribution. You should take the distribution as late as possible to give you more time to get the money back into the Roth.

Submitted by Narayan Baral on Wed, 2019-05-01 00:59

“You are only allowed one IRA rollover in a 12 month period. If you rolled over any distribution in the last 12 months, you cannot take another distribution until that 12 month has expired. And if you are in the clear and do this rollover, you cannot do another one for the next 12 months”. Does that mean I can only access one account at a time in 12 months? I was planning to use three different Roth accounts to withdraw $33K (contribution only) and put it back before 60 days.

Submitted by Alan - IRA critic on Wed, 2019-05-01 18:02

The rollover limitation applies collectively to all your Roth and non Roth IRA account distributions. The IRS changed their interpretation of this limit from applying per IRA account to per taxpayer effective in 2015. When you withdraw from a Roth, the first dollars distributed are your regular Roth contributions made to any Roth IRA. That means that if your total of regular contributions is at least 33k, you could distribute 33k from any of these accounts regardless of which account received the regular contributions. In other words, all your Roth IRAs are treated as if they were one combined account. Therefore, you could limit yourself to just one distribution as long as at least one of your accounts has a balance of that much. And if none of your Roth accounts holds 33k, then you can do a non reportable direct transfer from one Roth to another to build up the balance in one account to exceed 33k, then make just one distribution. What you cannot do is extend the 60 day rollback period by using multiple IRA accounts for your distributions. This is exactly the type of activity the IRS wanted to shut down in 2015, since IRAs were never intended to make loans to IRA owners.

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