Can I Return Funds to My Roth IRA After Taking Them as a Distribution?

Yes, but only if you follow very specific IRS rules

Even though individual retirement account (IRA) money is meant to be held until you retire, borrowing from the account isn’t out of the question. In particular, it is possible to make a withdrawal from your Roth IRA and put the funds back without tax consequences or penalties—but only under certain circumstances. If you are considering doing so, make sure to understand and abide by the following rules.

Key Takeaways

  • You can put funds back into a Roth IRA after you have withdrawn them, but only if you follow very specific rules.
  • These rules include returning the funds within 60 days, which would be considered a rollover.
  • Rollovers are only permitted once per year.

A Tale of Two Distributions

There are two different types of distributions or withdrawals from a Roth IRA. The first type is a qualified distribution. According to Internal Revenue Service (IRS) guidelines, a distribution counts as qualified if you have a Roth account that is at least five years old, and as the account holder:

  • You are over the age of 59½
  • You become disabled
  • You are buying a home for the first time
  • You die, and your beneficiary makes a withdrawal from the account

Withdrawals that don’t fall into these categories are called non-qualified distributions. So why does it matter which type of distribution you make? In a nutshell, qualified distributions are income tax- and penalty-free. Non-qualified distributions are not.

Taxes and Roth IRAs

You can withdraw any of your contributions from your Roth IRA without penalty and tax implications at any time and at any age. You have this privilege because deposits to Roth IRAs are made with after-tax dollars. Where the qualified or non-qualified status applies is primarily with withdrawals of any earnings that the account has generated—interest income, dividend income, and capital gains.

Earnings withdrawals are considered qualified—that is, not subject to income tax or an early withdrawal penalty of 10%—as long as you meet at least one of the conditions listed above.

Eligible amounts that are rolled over from another tax-deferred account within the 60 days are also free of any taxes or penalties. This is often referred to as the 60-day rollover rule, and it applies even if the amount is a non-qualified distribution.

Withdrawing and Returning Roth Funds

Those 60 days also come into play if you want to redeposit withdrawn funds. According to the IRS, you can make a tax-free withdrawal of some or all of the money in your Roth IRA as long as you put the money back into the same Roth IRA within 60 days. This is considered a Roth IRA rollover in the eyes of the IRS. In this case, IRS From 1099-R is used to report the distribution/rollover amount.

The IRS does not allow you to take a loan from either a Roth or traditional IRA, but the 60-day rollover rule is used by some people to borrow money from an otherwise untouchable retirement account interest free and on a short-term basis.

Roth IRA Rollover Rules

Taking funds out of your Roth IRA and putting them back may sound like a loan. Technically, it isn’t a loan if it falls under IRS provisions that allow rollovers. You can roll over the amount that you withdrew to the Roth IRA or another of your Roth IRAs if the following conditions are met:

  • The funds are rolled over within 60 days from when you received them.
  • The Roth IRAs were not involved in a rollover during the 12 months preceding the date of the distribution.

The last requirement is because a Roth IRA can be involved in a rollover only once during a 12-month period. This rule applies to traditional IRAs as well.

Missing the 60-Day Rollover Deadline

Under some special circumstances, the IRS may waive the 60-day rollover requirement if you missed the deadline.

Another rule to be aware of in this situation is that you cannot roll the amount over to your own Roth IRA from your spouse’s IRA account—unless you are rolling over an inherited IRA.

The 12-month rollover rule does not apply to Roth IRA conversions from other types of IRAs.

How Much Is the Early Withdrawal Penalty?

The early withdrawal penalty for both Roth and traditional individual retirement accounts (IRAs) is 10% of the amount withdrawn before age 59½. You may also owe income tax. You can withdraw contributions (but not earnings) at any time from a Roth IRA without paying the early withdrawal penalty or tax.

Can I Take a Loan From My Roth IRA?

While the Internal Revenue Service (IRS) prohibits IRA loans, you can borrow from your Roth or traditional IRA without paying taxes and penalties by applying the 60-day rollover rule. The rule allows you to withdraw assets from your IRA tax- and penalty-free if you repay the full amount within 60 days.

What Is the One-Year Rollover Rule?

The IRS limits Roth IRA-to-Roth IRA rollovers and traditional IRA-to-traditional IRA rollovers to one every 12 months. The one-year rollover rule is not based on the calendar year. It runs from the time when you made the distribution to the IRA.

The Bottom Line

You can put funds back into your Roth IRA after you have withdrawn them if you follow the rules listed above. The 60-day rule allows for what is in essence a short-term, interest-free loan. But if you miss the deadline, you’ll owe taxes and penalties.

Article Sources
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  1. Internal Revenue Service. “Publication 590-B (2020), Distributions from Individual Retirement Arrangements.”

  2. Internal Revenue Service. “Rollovers of Retirement Plan and IRA Distributions.”

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