After withdrawing $6,000 from my Roth IRA, I re-contributed the same amount to a different broker. I’m uncertain about the rules governing such a transaction. Does the 60-day rollover rule apply in this situation, even if the re-contribution occurred possibly after 60 days? Additionally, what steps should I take if I’m advised to complete a removal of excess contribution form, and what are the potential consequences?

In the scenario where $6,000 was withdrawn from a Roth IRA and then re-contributed to a different broker, it’s essential to understand the rules governing such transactions, particularly in relation to the 60-day rollover rule.

Roth IRA Withdrawal and Re-Contribution

• Withdrawal Flexibility:
  • Roth IRAs are funded with after-tax money, meaning withdrawals of contributions (not earnings) are generally not subject to tax consequences.
  • You can withdraw contributions from your Roth IRA at any time without penalty, regardless of the reason or your age.
• 60-Day Rollover Rule:
  • The 60-day rollover rule allows for the re-contribution of withdrawn funds into an IRA within 60 days without tax penalties.
  • If the re-contribution happened after 60 days, it might not qualify as a rollover. In such cases, the re-contributed amount could be considered as a regular contribution for the current year.
• Excess Contribution and Potential Steps:
  • If the re-contribution is deemed an excess contribution (due to the 60-day rule violation or exceeding the annual contribution limit), you might need to remove it using a ‘removal of excess’ form, as advised by your broker.
  • The consequences of not addressing excess contributions include a 6% tax per year on the excess amount until it is corrected.

Practical Example

Imagine you withdrew $6,000 from your Roth IRA and re-contributed it to a different IRA after 70 days. In this case, the re-contribution may be treated as an excess contribution for the current year. You would need to consult with your broker and possibly file a removal of excess contribution form to avoid the 6% penalty.

Conclusion

Understanding the specifics of Roth IRA withdrawal and re-contribution rules is crucial, especially when dealing with the 60-day rollover period and potential excess contributions. It’s advisable to consult with a tax professional or a CPA to navigate your specific situation accurately.