Returning IRA Distribution within 60 days
I have a client who is considering taking money out of his IRA to purchase a home. If he does take a distribution, I know that he can return the ENTIRE amount to his IRA within 60 days to reverse the withdrawal…but can he return a PORTION of the withdrawal to avoid taxes and penalties on that portion?
For example, if he takes out $10K and is able to return $5K within 60 days…is he taxed on $5K? Or is he taxed on $10K, with the $5K he returns being considered a current year contribution? We’re getting conflicting advice. Our firm’s tax specialists say he can return a portion, while his tax pro says that he has to return the entire amount – and anything short of that is treated as a contribution and not a reversed withdrawal. Looking for a definitive answer. Thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2022-02-10 00:54
He is only taxed on the 5000 that he does not roll back, and he can roll back whatever portion he wishes. That said, withdrawing for a home purchase often results in needing all the money. He also must be aware that he can only do one rollover of a distribution over a 12 month period. Perhaps his tax person did not understand the question.