You can take money from your IRA, tax-free, as long as you roll the same amount back into an IRA within 60 days. However, the 60-day window for IRA rollovers is open only once every 12 months for each IRA.
Suppose Jim Jones withdraws $10,000 from his IRA on December 1, 2011, and puts $10,000 back into his IRA on January 15, 2012. That’s a tax-free IRA rollover because fewer than 60 days have elapsed.
Then Jim takes $12,000 from that same IRA on March 31, 2012. No matter when Jim acts, he cannot roll that money back into an IRA. That’s because it has been less than 12 months since Jim’s last rollover. Therefore, Jim has a taxable withdrawal of $12,000, and he may owe a 10% penalty if he is younger than 59-1/2.
In this situation, if Jim has $12,000 to reinvest his best move might be to put the money into a Roth IRA. Then he’ll owe income tax but he won’t owe a 10% penalty if he leaves the money in the Roth IRA for at least five years. Once the money is in a Roth IRA, earnings inside the account will be tax-free. All Roth IRA withdrawals will be tax-free, too, after five years and after age 59-1/2.