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I have a roll over IRA from my employer.

Can I add funds to this as long as I do not exceed my yearly allowance or should I open up another separate IRA? Also, would I be allowed to take money out and put it back in at anytime? Thanks

Feb 21, 2014 by Stephen from Charlottesville, VA in  |  Flag
5 Answers  |  7 Followers
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7 votes
Peter C. Karp Level 20

Stephen,

I assume you have received a distribution from your former employer and that you put that money in an IRA rollover account. Given contributions to an employer sponsored plan are generally pre-tax contributions and contributions you make as an individual to an IRA account are after-tax, you may want to consider keeping them separate. This would provide you with a bit more flexibility should you decide to go to work for a different employer and want to move your rollover monies into that plan. As the other advisors pointed out, if you receive the distribution from your employer directly, you have 60 days to put it into an IRA rollover to avoid the money being taxed as ordinary income. You would be wise to check with your tax accountant or an experienced financial advisor to discuss your specific situation and objectives.

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Comment   |  Flag   |  Mar 04, 2014 from San Francisco, CA

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6 votes

Hi Stephen,

I'm going to overview a point from your original question that hasn't yet been answered, then I'm going to address the follow on question you asked to both of the earlier respondents, that hasn't been answered yet.

Regarding the rollover and whether you can contribute to the current IRA or should open up another IRA, when doing a rollover from an employer plan, you may wish to consider opening up a "Rollover IRA" as opposed to a standard Traditional IRA. While they are in essence the same thing to the IRS for all tax laws, the Rollover IRA does allow you to better track your former employer money if you will be working for a new employer and may later wish to invest your monies in your new employer's plan. I found the information at the following site helpful to providing greater details on this issue: http://budgeting.thenest.com/traditional-ira-vsrollover-ira-3812.html. If you will be placing these funds with another employer in the future, then you should open a seconnd IRA for any contributions you make, in order to keep them separate.

Now, onto the follow-on questions you've asked. The IRS's rules are that you can only do a 60 day rollover once per year from the account(s) involved. So, if you take money out of your IRA - let's call this a short term loan to yourself since that's what it sounds like you may be contemplating - and then replace the funds within 60 days, you cannot do such a transaction again until one year after the date you made your withdrawal. If you replace money AFTER the 60 day time limit has expired, then your distribution will be fully taxable at your income tax bracket for the year and reportable on that year's income tax return. Also you would be unable to place the funds back in the IRA. For anyone under the age of 59.5, they would also owe a 10% penalty, however you have commented that you are over age 59.5, so in your case that would not apply.

Good luck with your decisions and actions!

Michelle Ash http://www.WealthGuards.com

Comment   |  Flag   |  Feb 21, 2014 from Jacksonville, FL

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4 votes

Hi Stephen, Yes, you can add funds to your rollover IRA, just make certain you file a Form 8606 with your tax return showing the after-tax contributions you've made (I'm making an assumption about your ability to deduct your contribution). No, you cannot take money out and put it back at any time. Withdrawals prior to age 59 1/2 are subject to income tax as well as a 10% penalty if not replaced within 60 days. I encourage people to leave their retirement accounts alone, as they are for retirement. There are ways to get income from your IRA prior to 59 1/2, but that would require another paragraph or three. I hope this answers your main questions. Good luck!

2 Comments   |  Flag   |  Feb 21, 2014 from Fort Worth, TX
Stephen

Ok thanks, well I am over 59.5 so that is not an issue. However, I would assume any money I take out can be replaced within 60 days without penalty but, I am sure there is a limit how many times this can be done in a year. This is what i would like to know. Secondly, lets suppose I replaced money outside of that 60 day time limit. What would happen ? thanks again

Flag |  Feb 21, 2014 near Charlottesville, VA
Jeff Karst, CFP®

Stephen: What you are taking about is an indirect rollover. You are only allowed to do an indirect rollover to/from the same IRA once every 365 days (not a calendar year). If the money is not placed back in the IRA within the 60 days then it is subject to tax. You can ask for a waiver but typically the IRS only grants these in extenuating circumstances.

Flag |  Feb 21, 2014 near Fresno, CA

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3 votes

Two items to emphasize from what Helen said. You should file the form 8606 if you are making AFTER tax contributions. If they are pre-tax (which generally are not permitted if you are participating in your employers retirement plan), no form filing should be necessary. Also, note that Helen indicated that you will suffer penalty only if funds withdrawn are not replaced within 60 days. I have had several special instances where clients needed very short term loans and took money out only to quickly replace it. This is permitted, but is advisable ONLY if you are 100% certain you will be able to put the money back within 60 days.

1 Comment   |  Flag   |  Feb 21, 2014 from Bridgewater, NJ
Stephen

Ok thanks, well I am over 59.5 so that is not an issue. However, I would assume any money I take out can be replaced within 60 days without penalty but, I am sure there is a limit how many times this can be done in a year. This is what i would like to know. Secondly, lets suppose I replaced money outside of that 60 day time limit. What would happen ? thanks again

Flag |  Feb 21, 2014 near Charlottesville, VA

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0 votes

Stephen, if you have the ability to make a deductible contribution, you can do it into your rollover IRA. I see no real need to open a new account. However, if these are after-tax contributions, I would recommend you keep the pre-tax and after-tax monies segregated, and if you are not phased out of contributing to a Roth IRA, I would consider that. .

If you are age 59 ½, you can withdraw money at any time, and would be subject to ordinary income tax. You do have an option to put it back in if you do so within 60 days, but you can only use this option once every 365 days. If you do not redeposit within 60 days, it will become a taxable withdrawal, and returning the money will be considered a contribution

Comment   |  Flag   |  Mar 06, 2014 from Delray Beach, FL

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