The tax benefits of individual retirement accounts encourage people to save for retirement. To receive the maximum tax-advantaged benefits, the contributions should be left in the account for a long time. Circumstances may require the account owner to withdraw the money from his account sooner rather than later. IRA funds may be withdrawn at any time, even immediately after the account is opened.
Eligibility for Withdrawals
While you are allowed to withdraw funds from an IRA account immediately after making a contribution, the financial institution managing the account may have its own specific requirements, depending on where the money is invested. For example, a bank may charge its own penalty in addition to Internal Revenue Service penalties for early withdrawal from a CD, and some mutual fund companies may have restrictions on how soon an investor may sell shares.
60-Day Time Frame
If you withdraw money from your IRA, you have up to 60 days to put the money back into the account without owing income taxes or a 10 percent early-withdrawal penalty on the withdrawn money. By putting the money back within 60 days, you are still eligible to make the maximum allowable contribution for the year; the replacement money does not count as a yearly contribution.
In the Same Tax Year
A traditional IRA account holder can withdraw money during the same tax year a contribution was made, and until the tax-filing deadline for the year the following April 15, without owing income taxes or a penalty on the income. Of course, since you withdrew the money, the effect is the same as if you didn't make the contribution, so you cannot claim a tax deduction for the IRA contribution. For example, suppose a person makes a $5,000 contribution to his traditional IRA on Jan. 1, 2011. He then withdraws $4,000 from the IRA on Jan. 31, 2011. The account owner is not taxed on the $4,000 withdrawal, nor does he owe a penalty. However, he can only claim a deduction for a $1,000 IRA contribution, the difference between the year's contributions and withdrawals.
Roth IRA Withdrawals
Roth IRAs are treated differently because the contributor receives no immediate tax benefit for his contribution, but instead is able to withdraw from his Roth tax-free when he reaches retirement age. A Roth IRA account owner can withdraw any amount of his contributions at any time for any reason. If he chooses to withdraw Roth earnings, he will probably have to pay taxes on the earnings if he has not reached retirement age.
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