Roth individual retirement accounts (IRAs) are one of the retirement account options available to investors. This kind of account is funded by after-tax dollars. This means any contributions you make are not tax deductible. The money you put in grows tax-free, and you can continue to contribute money up to the age of 70½, as long as you are working.

Even though IRAs are meant to be held until you retire, withdrawals aren't out of the question. And if you're wondering, it is possible to make a withdrawal from your Roth IRA and put the funds back without tax consequences or penalties. This is only allowed 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  • You can put funds back into a Roth IRA after you have withdrawn them, but only if you follow very specific rules.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 doing so 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 one is a qualified distribution. Guidelines permit these types of withdrawals to be made if the account is at least five years old, and:

  • You are over the age of 59½.
  • The distribution is made because the account holder becomes disabled.
  • You are buying a home for the first time.
  • The beneficiary makes a withdrawal after the account holder dies.

Distributions that don't fall into these categories are called nonqualified distributions.

Taxes and Roth IRAs

You can withdraw any of your contributions from your Roth IRA without penalty and without any tax implications as long as you meet at least one of the conditions above. Earnings are generally not considered withdrawn until all contributions are vacated from the account.

Eligible amounts that are rolled over within the 60 days are not subject to income tax or an early distribution penalty of 10%. This is often referred to as the 60-day rule. This applies even if the amount is a nonqualified distribution.

Because contributions to Roth IRAs are made with after-tax dollars, there are fewer restrictions on withdrawals when compared to traditional IRAs, where you make contributions with pretax dollars.

Roth IRA Rollover Rules

Taking funds out of your Roth IRA and putting them back may sound like a loan, which the IRS prohibits. Technically, it isn't a loan if it falls under IRS provisions that allow rollovers.

You can roll over the amount you withdrew to the Roth IRA, or another of your Roth IRAs—excluding inherited 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.

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

Another rule to be aware of in this situation is that you cannot roll the amount over to your Roth IRA if you are the spouse, unless you are rolling over an inherited IRA.

Traditional IRAs

People who invest in traditional IRAs are allowed to put pre-tax money into the account. These contributions may be tax deductible based on a series of factors including the investor's income and filing status. Money withdrawn from a traditional IRA is treated as income, and is subject to taxes. Withdrawals can be made as early as age 59½, and the account holder must take a minimum distribution after age 70½.

If you take a distribution, you can roll over the amount to the same or another account. In order to do so, you must not have completed another rollover within the last 12 months. The amount must be eligible for rollover—any minimum distributions after 70½ are not eligible. Finally, the rollover must be completed within 60 days after which the distribution is received.