Q: I took money out of an IRA. Can I change my mind and put it back in?
A: In many cases, once you’ve pulled money out of the tax-advantaged wrapper of an individual retirement account, you can’t reverse course and pump it back in. But there are a few times when you can do exactly that: usually only within a 60-day window after you took the distribution, and subject to another big hurdle if you are older than 70½.
If you now regret an IRA withdrawal, there could clearly be a big financial payoff for reversing it: You would nix the tax bill due on pretax contributions, plus any additional early-withdrawal penalty if you’re under 59½.
The key to the do-over option is a tax rule that people use to roll their IRA money from one financial institution to another. If you take a distribution from your IRA at Company A today and deposit those dollars in an IRA at Company B within 60 days, there’s no tax bill due. You can take advantage of the same window to roll the money back into your original IRA, says Suzanne Shier, chief wealth planning and tax strategist at Northern Trust: “You just have to put it back into an IRA. It doesn’t have to be another institution.”
Last year, the IRS granted a little more flexibility to IRA investors who accidentally go beyond the 60-day period on a rollover. Note, though, that you are allowed only one IRA-to-IRA rollover per year.
There’s also an extended timeframe for some people who pull money out of an IRA to buy their first home. Under tax law, those withdrawals are taxable but are excused from the 10% penalty before age 59½. If you make a withdrawal and the money isn’t used for the home purchase because of delay or cancellation, you have 120 days to put it back in.
Your do-over option is a lot more limited, however, if you are older than 70½. At that stage, you must take required minimum distributions (RMDs) from traditional IRAs each year. The first dollars you pull out are counted toward your RMD, and RMDs are not allowed to be redeposited.
So if your RMD for this year is $20,000, say, and you pull out $10,000, that money is considered part of your RMD and is gone from the IRA for good. But dollars that are withdrawn above and beyond your RMD can be put back in, Shier says. So if you pull out $30,000, you could change course on the $10,000 above your $20,000 RMD.
There are added complications with an inherited IRA, Shier says. If you are the beneficiary of an inherited IRA, “there is no 60-day rule,” she says, so you can’t take money out and put it back in. But if you inherit an IRA from your spouse, you actually have the option to roll those dollars into your own account, which might open up the do-over option.