Some financial moves are easily undone. You can sell a stock, for instance, and change your mind and buy it back the following week. But when it comes to individual retirement accounts, which give you tax breaks for saving, there are only limited circumstances in which you can pull your money out of that tax-advantaged bubble and pump it back in.
Why might you want to do that? Maybe you assumed there were no other options besides tapping your IRA to cover a financial emergency, but then a family member stepped in to help. If you’re dealing with a traditional IRA in which you made tax-deductible contributions, reversing the withdrawal could save you from a big tax bill and also the 10% early-withdrawal penalty if you are younger than 59½. You would delay the tax bill until later in life and, perhaps more important, you would leave your nest egg alone to keep growing for your retirement years.
Here’s a look at the rules for four instances in which you might dip into an IRA and then want a do-over.
You’re under 70½ and tapped your IRA, but now don’t need the cash.
You have a 60-day window to get that money back into an IRA. The key to the do-over option is a tax rule that people often use to roll 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 also use this 60-day rule to deposit the money you withdrew 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 at another institution.”
There are a few things you need to know: You can use this 60-day rule only once a year. However, there are no limits on transactions in which you direct your IRA custodian to send the dollars directly to another provider. And last year, the IRS granted a little more flexibility to IRA investors who accidentally go beyond the 60-day period for reasons such as a family death or home damage.
You withdrew to buy your first home, but there was a problem.
As a first-time homebuyer, you can avoid the usual penalty for IRA withdrawals before age 59½. And you get extra time to undo a withdrawal as well: If the money isn’t used for the home purchase because of delay or cancellation, you have 120 days to put it back in.
You tapped the account after 70½ but wish you had made a direct charitable contribution from your IRA instead.
This one is tricky. Once you reach the age for required minimum distributions (RMDs) from traditional IRAs, the first dollars you pull out each year are counted as that. And RMDs are not allowed to be redeposited.
So if your RMD for this year is $20,000, and you withdrew that amount, you can’t change your mind to do a $20,000 charitable transfer. However, if you pull out $30,000, you could change course on the $10,000 above your RMD.
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You withdrew from an inherited IRA in which you’re the beneficiary.
You’re out of luck. “There is no 60-day rule” in this case, Shier says, so you can’t put the money back. There is a wrinkle, though: If you inherited an IRA from your spouse, you can roll those dollars into your own account, which might open up the do-over option for the future.