Can I Take Money Out of My IRA and Put It Back in 60 Days?
Understand the regulations for using IRA funds on a short-term basis. This guide explains the critical rules for redepositing money to protect its tax status.
You can take a distribution from your Individual Retirement Arrangement (IRA) and return it to a retirement account without incurring taxes, provided you follow specific Internal Revenue Service (IRS) regulations. This transaction is known as an indirect rollover and is governed by the “60-day rule,” which allows you temporary access to your retirement funds.
An indirect rollover offers flexibility for managing personal finances, such as bridging a short-term cash flow gap. However, the process is subject to strict timelines and limitations, and understanding these rules is necessary to avoid potentially significant tax consequences.
The 60-Day Rollover Rule Explained
An indirect rollover occurs when you receive a distribution from your IRA directly. The 60-day period begins the day after you receive the distribution. To complete the rollover, you must deposit the funds into an eligible retirement account, which can be the same IRA or a different one, before this 60-day window closes.
A complication can arise if you have taxes withheld. Unlike the mandatory 20% withholding for 401(k)s, tax withholding on an IRA distribution is optional, often at a default rate of 10%. If you elect to have taxes withheld, the entire gross amount of the withdrawal must be redeposited to avoid tax liability.
For example, if you withdraw $20,000 and 10% ($2,000) is withheld, you receive $18,000. To complete a tax-free rollover, you must deposit the full $20,000, meaning you must use $2,000 from other sources. If you only redeposit the $18,000, the withheld $2,000 will be subject to income tax and a potential 10% early withdrawal penalty.
The Once-Per-Year Limitation
A significant restriction is the once-per-year limitation, which allows only one IRA-to-IRA rollover in any 12-month period. This limit applies to you as an individual, not each separate IRA; all of your IRAs, including Traditional, Roth, SEP, and SIMPLE IRAs, are aggregated for this rule. The 12-month period is a rolling timeframe that begins on the date you receive the distribution.
For example, if you take a distribution on June 1st and complete a rollover, you cannot perform another from any of your IRAs until June 1st of the next year. A second rollover within this window would make the distribution fully taxable.
This rule does not apply to direct trustee-to-trustee transfers, where money moves between financial institutions without you taking possession of it. Rollovers from a 401(k) to an IRA and conversions from a Traditional to a Roth IRA are also exempt.
Tax Implications of a Failed Rollover
Failing to redeposit funds within the 60-day period has costly tax consequences. If you miss the deadline, the distribution is treated as taxable income for the year you received it. The withdrawn amount is added to your gross income and taxed at your ordinary income tax rate, which can push you into a higher tax bracket.
If you are under age 59½, the distribution is also generally subject to a 10% early withdrawal penalty. For example, on a $50,000 failed rollover, a person under 59½ in the 24% tax bracket could face $12,000 in federal income tax plus a $5,000 penalty.
The financial institution will report the transaction to the IRS on Form 1099-R as a standard distribution. It is your responsibility to report it as a taxable event or prove that a valid rollover occurred or that you qualify for a waiver.
Waivers for Missed Rollover Deadlines
The IRS may grant a waiver for a missed 60-day rollover deadline if the failure was due to circumstances beyond your reasonable control. There are two primary methods for obtaining a waiver: self-certification and requesting a private letter ruling (PLR).
Self-certification is the more accessible option if you missed the deadline for specific reasons, including:
- An error by the financial institution
- A misplaced and uncashed distribution check
- Serious illness affecting you or a family member
- Severe damage to your principal residence
To self-certify, you must write a letter to the receiving financial institution stating that you meet the conditions for a waiver. You must also make the rollover contribution as soon as practicable, which is within 30 days of the impediment being removed.
If your situation does not fit these reasons, you can request a private letter ruling from the IRS. This is a formal and expensive process, as the IRS charges a user fee that can exceed $10,000, and is pursued when the financial stakes are high.