If you need cash in the short term, your IRA may be a good place to find it. As long as you return your withdrawal within 60 days, you won’t owe income tax. However, if you miss the 60-day window, you’ll owe tax and probably a 10% penalty if you’re younger than 59-1/2.
In one case, a taxpayer was informed (actually, misinformed) by an advisor at a financial institution that the window was 90 days, not 60 days. Therefore, he waited for 83 days until putting the money back into his IRA.
After the taxpayer discovered his mistake, he appealed to the IRS, providing documentation that he was misled by his financial advisor. The IRS agreed to waive the 60-day rule and permit the taxpayer to return the money to his IRA, tax-free.
Generally, you should make every attempt to observe the 60-day rule in such circumstances. Missing the deadline and filing an appeal is expensive and time-consuming. However, if you do have a good reason for missing the deadline, the IRS may grant you some relief. (See IRS Private Letter Ruling 201021040.)
