Early IRA Distribution

[artbuc]

What is the name of your state? PA/DE

This is a variation of an earlier question so I thought I should start a new thread.

If I take an early partial distribution from a traditional IRA, I understand that the administrator will withhold 20% for regular taxes. I also understand that I have 60 days to roll-over this early partial distribution to another traditional IRA. This is not considered borrowing from your traditional IRA which is, of course, prohibited under IRS rules.

Questions: If I decide to roll-over this early partial distribution, do I have to add back enough dollars to make-up for the 20% withholding or is that simply an option? What happens if I roll-over just the after-tax amount? Does that invalidate the roll-over? If I do make-up the 20% withholding out of other funds and roll-over the entire pre-tax distribution, do I have to wait until I file to get back the 20% withholding? Can I roll-over back to the original traditional IRA or do I have to roll-over into an entirely different IRA?

 

[tranquility]

You can generally do what you propose. There are time limits as to the number of times you can do it. The amount that is not rolled within 60 days is a distribution. You can add money from another source up to the level of the distribution when you deposit the rollover in whatever IRA (traditional) you prefer. You will not get the withholding back until you file your taxes.

 

[abezon]

If you plan to rollover the money in 60 days anyway, why are you taking a distribution at all? You would be much better served by a direct rollover. In a direct rollover, you instruct the IRA custodians to transfer assets (or sell within the IRA & transfer cash) from your old IRA to a new one. You never see the money, so you have not taken a distribution. No money is withheld & sent to the IRS.

If you're pullling out money because you might need it, I urge you to contact your current IRA custodian & find out just how long it really takes to get money out. You may be able to do some pre-withdrawal paperwork so that an actual withdrawal can go through more quickly. You may also want to set things up using multiple withdrawals if you know you'll need some money but aren't sure how much total.