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Message
Early IRA withdrawal
Posted on 8/10/23 at 8:56 am
Posted on 8/10/23 at 8:56 am
I had a major and unexpected expense come up, that I cannot cover completely with savings. I will need to withdraw from my traditional IRA.
Am I correct in understanding that if I pay the full amount withdrawn (including taxes withheld) back within 60 days there is no 10% penalty?
If I pay only a partial amount back does the early withdrawal penalty only apply to the difference between what I withdrew and what I paid back?
Am I correct in understanding that if I pay the full amount withdrawn (including taxes withheld) back within 60 days there is no 10% penalty?
If I pay only a partial amount back does the early withdrawal penalty only apply to the difference between what I withdrew and what I paid back?
4
Posted on 8/10/23 at 9:37 am to BlackAdam
You got it. Google 60 Day rollover.
However, I'd suggest not withholding the taxes. If you withhold, you'll pay taxes and penalties on the additional amount you withheld. You'll also have to get that money back in which is going to make it harder to replenish.
You didn't share amounts, but you have until April to submit those taxes so if you HAVE to do this, I'd save the taxes over the next 8 months so you don't double screw yourself.
However, I'd suggest not withholding the taxes. If you withhold, you'll pay taxes and penalties on the additional amount you withheld. You'll also have to get that money back in which is going to make it harder to replenish.
You didn't share amounts, but you have until April to submit those taxes so if you HAVE to do this, I'd save the taxes over the next 8 months so you don't double screw yourself.
Posted on 8/10/23 at 9:45 am to UpstairsComputer
Thanks for the reply.
Just to use round numbers If I take out 10,000 and payback 10,000 in 60 days I owe no tax, and no 10% penalty.
If I take out 10000 and payback 8000 in the next 60 days I owe taxes on the 2000 and penalty on the 2000.
If I take out 10000 and payback 8000 in the next 60 days and 2000 between now and April 24, Ill owe penalty on the 2000, but should not have any additional income tax on the distribution amount/
Just to use round numbers If I take out 10,000 and payback 10,000 in 60 days I owe no tax, and no 10% penalty.
If I take out 10000 and payback 8000 in the next 60 days I owe taxes on the 2000 and penalty on the 2000.
If I take out 10000 and payback 8000 in the next 60 days and 2000 between now and April 24, Ill owe penalty on the 2000, but should not have any additional income tax on the distribution amount/
Posted on 8/10/23 at 9:59 am to BlackAdam
That really sucks.
Is there no other option to borrow money like a Heloc or if you think you can cover short term, a credit card?
Taking money out early should be a last resort.
Is there no other option to borrow money like a Heloc or if you think you can cover short term, a credit card?
Taking money out early should be a last resort.
Posted on 8/10/23 at 10:07 am to Helo
quote:
That really sucks.
Is there no other option to borrow money like a Heloc or if you think you can cover short term, a credit card?
Taking money out early should be a last resort.
It is my only option at the time. The draw period on my heloc ended in 2022, and i didn't start a new one because I had a 0 balance on the previous one.
My only credit card does not have sufficient available credit to cover the expense. My business does production services and with writers and actors on strike, revenue is down to almost nothing. I may have to use the card to cover some living expenses once my savings are exhausted. I had about 180 days cash, but have been having to augment the family budget with that for the last few months, and this expense will eat up whats left.
This is just happening to me at the worst possible time.
This post was edited on 8/10/23 at 10:20 am
Posted on 8/10/23 at 10:11 am to BlackAdam
Just realize, if you can raise $10,000 in 60 days, you could probably pay off a $10,000 credit card in that length of time.
IF you screw up by one day with the IRA you will probably be paying at least 40% in taxes and penalties to both state and federal, whereas credit card interest should be considerably less than that, especially if you pay it off in 60 days or so.
Yes, credit card interest rates are high, but that is yearly rate, and you are going to pay it off, aren't you?
Do you have any Roth IRA assets? You can get your contributions if you do without penalty.
IF you screw up by one day with the IRA you will probably be paying at least 40% in taxes and penalties to both state and federal, whereas credit card interest should be considerably less than that, especially if you pay it off in 60 days or so.
Yes, credit card interest rates are high, but that is yearly rate, and you are going to pay it off, aren't you?
Do you have any Roth IRA assets? You can get your contributions if you do without penalty.
This post was edited on 8/10/23 at 10:14 am
Posted on 8/10/23 at 10:48 am to BlackAdam
quote:
Just to use round numbers If I take out 10,000 and payback 10,000 in 60 days I owe no tax, and no 10% penalty.
Correct, but make sure your broker codes it as a 60 day rollover.
quote:
If I take out 10000 and payback 8000 in the next 60 days I owe taxes on the 2000 and penalty on the 2000.
Correct.
quote:
If I take out 10000 and payback 8000 in the next 60 days and 2000 between now and April 24, Ill owe penalty on the 2000, but should not have any additional income tax on the distribution amount/
Incorrect. Technically, if you put it back in, you'd receive a deduction as a contribution - if you're eligible to receive a deduction - and then you'd have a distribution that had taxes and penalties. You're also potentially straddling two calendar years. You're logic is correct, your verbiage and how it will be treating by the IRS is incorrect.
Also, big word of caution for anyone reading this - you only get one shot in a 365 day period to do this. You can't put it back in twice. That would be two different rollovers and while I've never seen it, the way I read it both could be disallowed if you got a dick on the phone for the IRS.
Posted on 8/10/23 at 1:48 pm to UpstairsComputer
Get a 0% credit card, usually will have 12-18 months at 0% to pay it back and seems like an infinitely better idea than taking out your IRA with some huge risks there not paying it back in 2 months.
If you cant pay back the $10k in 2 months at least you have 10-16 more months until any interest would even hit on the c.c.
Give yourself some margin here, cant imagine trying to pay that back in just 2 months considering the consequences. Lot of pressure on you to do that.
Some options:
LINK
If you cant pay back the $10k in 2 months at least you have 10-16 more months until any interest would even hit on the c.c.
Give yourself some margin here, cant imagine trying to pay that back in just 2 months considering the consequences. Lot of pressure on you to do that.
Some options:
LINK
This post was edited on 8/10/23 at 2:06 pm
Posted on 8/10/23 at 4:48 pm to BlackAdam
See if you can avoid having taxes withheld on the withdrawal. That’s now a lower burden to replace, and worst case scenario is you have a possible minimal underpayment penalty if you don’t cover them before tax time.
Posted on 8/10/23 at 4:52 pm to BlackAdam
a few credit cards are offer 0% on any balance transfers for 12 months with a 3% transfer fee
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