Avoiding 59.5 penalty by putting money back
Can an IRA owner take out some money in February this year, use the money, then put the same amount back in before the end of the year and avoid the pre 59/5 penalty? Would that same person, doing the same thing, be able to avoid the income tax requirement as well?
Thanks.
Permalink Submitted by mk foss on Tue, 2012-02-14 01:56
The 10% penalty for early distributions will apply and the withdrawal will be subject to income tax if it is not returned within 60 days of the withdrawal. Normally the custodian will not take the money back after 60 days and if they do it’s an excessive contribution and subject to annual penalties.
Lots of folks have had difficulty in taking IRA money intending to pay it back within the 60 day period and missing the deadline. The IRS can waive the 60 day period but will not do so when the funds are taken out for a short term loan.
Permalink Submitted by mk foss on Tue, 2012-02-14 01:57
The 10% penalty for early distributions will apply and the withdrawal will be subject to income tax if it is not returned within 60 days of the withdrawal. Normally the custodian will not take the money back after 60 days and if they do it’s an excessive contribution and subject to annual penalties.
Lots of folks have had difficulty in taking IRA money intending to pay it back within the 60 day period and missing the deadline. The IRS can waive the 60 day period but will not do so when the funds are taken out for a short term loan.
Permalink Submitted by Michael Stokes on Tue, 2012-02-14 03:49
🙂 Thanks for the information!!