Can I Redeposit a Hardship IRA Withdrawal?

Usually, if you take a distribution from an IRA before you turn 59 1/2 years of age, you must pay a 10 percent penalty tax, plus any income tax due. The IRS has a few exceptions to the rule, though, and allows you to avoid the penalty tax if you withdraw the money for certain reasons. If you take an early distribution, you can redeposit it in the account.

Acceptable Withdrawals

Avoid the 10 percent tax when you withdraw the money to pay for higher education or to purchase your first home. You can also take an early distribution from an IRA without the additional penalty tax if you become permanently disabled or if you have medical expenses that are more than 7.5 percent of your adjusted gross income. If you are unemployed for at least 12 weeks, you can use money from your IRA to pay health insurance premiums.

Redeposit Rules

If you take a distribution from a traditional IRA, you will owe income tax on the earnings and the original amount. You can avoid paying the extra income tax by putting the entire amount you withdraw back into the account within 60 days. If you redeposit the entire withdrawal within the time frame, the IRS considers it a rollover, not a distribution.

Deposits After 60 Days

You can repay yourself after the 60 days have passed if you need to take an early distribution from your IRA. You will owe income tax on the amount you withdraw from a traditional IRA and on the earnings from a Roth IRA if the account is less than five years old after 60 days have passed. The money you deposit into the IRA will count as a new contribution and will count towards your $5,000 limit for the year.

Important Considerations

In almost all cases, it is best to leave the money in your IRA and to turn to other sources first. For example, there is no tax or penalty involved when you use funds from an emergency savings account to pay for school, a first home or medical expenses. Taking a withdrawal from your IRA, even if you intend to redeposit it, should be a last resort.

 

About the Author

Based in Pennsylvania, Emily Weller has been writing professionally since 2007, when she began writing theater reviews Off-Off Broadway productions. Since then, she has written for TheNest, ModernMom and Rhode Island Home and Design magazine, among others. Weller attended CUNY/Brooklyn college and Temple University.