Special Rules for IRA Withdrawals

If you take money from your IRA, there are two rules to follow:

1. The 60-day rule. You must put the same amount back into an IRA or another tax-sheltered retirement account within 60 days. If you miss this deadline, the transaction will be treated as a distribution. You’ll owe income tax on the money you took from your IRA and probably a 10 percent penalty if you’re younger than 59 1/2. If you succeed in re-depositing the money, you will have completed a “rollover,” even if the money goes back into the same IRA.

2. The 12-month rule. After a successful rollover between IRAs, you can’t make another rollover from either IRA for the next 12 months. The period starts on the date you received money from an IRA. Violating the 12-month rule might lead to a taxable distribution, an early withdrawal penalty, and a 6 percent penalty for an excess contribution to the IRA receiving the money.

If you follow the 60-day and the 12-month rules, you can tap your IRA for short-term funds without adverse tax consequences. However, if you are just moving money between IRAs, it’s safer to ask for a direct transfer from one IRA to another: on direct transfers, neither the 60-day nor the 12-month rule applies.