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New Member
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Oct 13, 2006, 07:52 AM
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IRA early partial distribution
Here is my scenario:
I left my previous employer earlier this year and rolled over my 401K and pension into an IRA within the 60 day requirement.
I had to take a partial distribution from the IRA for personal reasons. Can I put the money distributed to me back into my IRA within 60 days and not be subject to taxes? Or in this situation, will I have to report the partial distribution as taxable income and be subject to the 10% tax penalty for early distribution?
And if the answer is it must be reported as taxable income, will the 10% additional tax be added to my taxable gross income for 2006 or is it a separate amount that must be paid accordingly and reported on Form 5329?
Thanks in advance for any feedback or information.
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Junior Member
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Oct 13, 2006, 09:20 AM
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Originally Posted by jricks
Here is my scenario:
I left my previous employer earlier this year and rolled over my 401K and pension into an IRA within the 60 day requirement.
I had to take a partial distribution from the IRA for personal reasons. Can I put the money distributed to me back into my IRA within 60 days and not be subject to taxes? Or in this situation, will I have to report the partial distribution as taxable income and be subject to the 10% tax penalty for early distribution?
And if the answer is it must be reported as taxable income, will the 10% additional tax be added to my taxable gross income for 2006 or is it a separate amount that must be paid accordingly and reported on Form 5329?
Thanks in advance for any feedback or information.
If you return that money within 60 days it shouldn't be a problem. However, you should be able to avoid the penalty if you have a legitimate reason that falls under one of the "acceptable" reasons to distribute early (i.e. hardship). You'll still have to pay tax on the actual distribution as income though. Look up the specifics on the web - www.irs.gov. Christina Boyle, CPA
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Senior Tax Expert
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Oct 13, 2006, 10:47 AM
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I agree that if you returned the money within 60 days, no taxes and no penalty will be due. Further, Ms. Boyle's advice on the hardship is solid.
When you took the distribution, the IRA custodian may have withheld 20% for federal taxes. If so, you will not be able to recover that withholding until you file your tax return for 2006.
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Junior Member
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Oct 13, 2006, 11:03 AM
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Yes, I should have mentioned that. Thank you AtlantaTaxExpert. I believe you can request that they not withhold tax. :rolleyes:
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New Member
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Oct 13, 2006, 11:56 AM
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Thanks very much for the advice and feedback. I actually did request no withholding when I received the distribution.
Just for clarification, if I get the money back into the IRA within 60 days, then I will not be subject to the 10% additional penalty. Unfortunately, I don't qualify for one of the "acceptable" reasons to distribute early.
Either way, I'll have to report the partial distribution as gross income on my 2006 taxes, right?
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Senior Tax Expert
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Oct 13, 2006, 12:12 PM
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You will get a Form 1099-R showing the distribution. You will need to account for that Form 1099-R by reporting the distribution.
However, because you reinvested the money back into the IRA, be it the original IRA or a different IRA, you will show NO taxable distribution. No tax will be due and the IRS should be satisfied.
It is possible (though not likely) the IRS may ask for some proof that you reinvested the money with the 60-day period specified. A printout from the IRA account showing the distribution and subsequent re-investment will normally fulfill that proof requirement.
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New Member
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Oct 14, 2006, 01:03 PM
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Thanks again for the great advice and explanation. I really appreciate it.
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Senior Tax Expert
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Oct 14, 2006, 02:13 PM
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Glad to help!
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New Member
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Oct 16, 2006, 06:35 AM
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I apologize, but have one last question pertaining to this topic.
I know I can contact the investment firm directly to find out, but would there be any reason for me to receive a Form 1099-R for the 401K and pension amounts that I rolled over to an IRA? The checks were made out directly to my IRA.
I know I'll receive the form from my firm with the IRA account, but wasn't sure about the rollover to the IRA when the account was opened over the summer. Thanks again.
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Junior Member
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Oct 16, 2006, 09:38 AM
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Yes you should receive a 1099-R even if it's a rollover. Can't recall this second but there will either be a rollover box checked on the form or you'll see the taxable amount as $0. The most important point is that you need to reflect it properly on your tax return as a rollover.
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New Member
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Oct 16, 2006, 10:11 AM
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Thanks again for the information and quick response. I'll make sure to have the funds back into my IRA before the 60-day period is up and I should suffer no taxable consequence.
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Senior Tax Expert
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Oct 16, 2006, 02:14 PM
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Do not forget to account for mailing time.
The 60-day period applies to the date the withdrawal was made and the date the money is received by the fund, NOT the day you mail it.
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New Member
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Aug 23, 2012, 12:13 PM
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If within the 60 days you pay back only part of the amount you took out are you only penalized on the amount unpaid?
e.g. if you took out $30,000 and paid back only $20,000 will you only be penalized for the $10,000 unpaid?
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Senior Tax Expert
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Aug 23, 2012, 12:53 PM
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Yes, that is correct. A partial repayment is permitted.
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