Tax implications of tIRA disbursement offset with contributions

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lassevirensghost
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Joined: Mon May 07, 2018 5:33 am

Tax implications of tIRA disbursement offset with contributions

Post by lassevirensghost » Wed Feb 20, 2019 8:39 pm

I know there is a rule about the 60 day window meant for rollovers that would allow a tax free use of tIRA funds. Assuming the disbursement is qualified (hence no 10% penalty; home down payment), what is the point of the 60 day window if you contribute back the amount disbursed before the end of the year? Wouldn't the contributions deduct the amount of tax owed in an amount equal to the disbursement you made and effectively cancel it out? In that case, the only cost of the whole thing would be the gains missed between the exiting and reentry of the funds, yes?
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

Gill
Posts: 5774
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Tax implications of tIRA disbursement offset with contributions

Post by Gill » Wed Feb 20, 2019 9:18 pm

lassevirensghost wrote:
Wed Feb 20, 2019 8:39 pm
I know there is a rule about the 60 day window meant for rollovers that would allow a tax free use of tIRA funds. Assuming the disbursement is qualified (hence no 10% penalty; home down payment), what is the point of the 60 day window if you contribute back the amount disbursed before the end of the year? Wouldn't the contributions deduct the amount of tax owed in an amount equal to the disbursement you made and effectively cancel it out? In that case, the only cost of the whole thing would be the gains missed between the exiting and reentry of the funds, yes?
Don’t understand your question. What tax owed are you referring to?
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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ResearchMed
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Re: Tax implications of tIRA disbursement offset with contributions

Post by ResearchMed » Wed Feb 20, 2019 9:24 pm

lassevirensghost wrote:
Wed Feb 20, 2019 8:39 pm
I know there is a rule about the 60 day window meant for rollovers that would allow a tax free use of tIRA funds. Assuming the disbursement is qualified (hence no 10% penalty; home down payment), what is the point of the 60 day window if you contribute back the amount disbursed before the end of the year? Wouldn't the contributions deduct the amount of tax owed in an amount equal to the disbursement you made and effectively cancel it out? In that case, the only cost of the whole thing would be the gains missed between the exiting and reentry of the funds, yes?
There are limits on the amount that one can contribute to a TIRA each year.
That 60-day rule (once per 12-month period) is a way to get short term use of the money, if needed.
Although there is the once-per-year restriction, there isn't any limit on the amount taken out this way. And there's no restriction on what one uses it for, etc.
The obvious risk is if it isn't paid back in time...

RM
This signature is a placebo. You are in the control group.

Topic Author
lassevirensghost
Posts: 96
Joined: Mon May 07, 2018 5:33 am

Re: Tax implications of tIRA disbursement offset with contributions

Post by lassevirensghost » Wed Feb 20, 2019 9:24 pm

Gill wrote:
Wed Feb 20, 2019 9:18 pm
lassevirensghost wrote:
Wed Feb 20, 2019 8:39 pm
I know there is a rule about the 60 day window meant for rollovers that would allow a tax free use of tIRA funds. Assuming the disbursement is qualified (hence no 10% penalty; home down payment), what is the point of the 60 day window if you contribute back the amount disbursed before the end of the year? Wouldn't the contributions deduct the amount of tax owed in an amount equal to the disbursement you made and effectively cancel it out? In that case, the only cost of the whole thing would be the gains missed between the exiting and reentry of the funds, yes?
Don’t understand your question. What tax owed are you referring to?
Gill
If you made a disbursement from your tIRA to pay for a down payment, you would still owe taxes next year on that disbursement but no 10% penalty. So I am asking if contributing an equal amount before the year is up back into the IRA would cancel out that disbursement and, therefore, the tax due.
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

Topic Author
lassevirensghost
Posts: 96
Joined: Mon May 07, 2018 5:33 am

Re: Tax implications of tIRA disbursement offset with contributions

Post by lassevirensghost » Wed Feb 20, 2019 9:27 pm

ResearchMed wrote:
Wed Feb 20, 2019 9:24 pm
lassevirensghost wrote:
Wed Feb 20, 2019 8:39 pm
I know there is a rule about the 60 day window meant for rollovers that would allow a tax free use of tIRA funds. Assuming the disbursement is qualified (hence no 10% penalty; home down payment), what is the point of the 60 day window if you contribute back the amount disbursed before the end of the year? Wouldn't the contributions deduct the amount of tax owed in an amount equal to the disbursement you made and effectively cancel it out? In that case, the only cost of the whole thing would be the gains missed between the exiting and reentry of the funds, yes?
There are limits on the amount that one can contribute to a TIRA each year.
That 60-day rule (once per 12-month period) is a way to get short term use of the money, if needed.
Although there is the once-per-year restriction, there isn't any limit on the amount taken out this way. And there's no restriction on what one uses it for, etc.
The obvious risk is if it isn't paid back in time...

RM
By paid back in time do you mean 60 days or the end of the year? My point is I don't see the distinction in this case between the two, since there is no penalty to consider. If you contribute everything back it wouldn't matter if it was considered a rollover or not, right?

It would, as you point out, decrease the amount you are able to contribute to go beyond 60 days, but I am not maxing that anyway. In that case, does it matter in any other sense?
“Groucho, how do you invest your money?” | “All in bonds.” | “But Groucho, they don’t pay much return.” | “They do when you have a lot of em!”

Gill
Posts: 5774
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Tax implications of tIRA disbursement offset with contributions

Post by Gill » Wed Feb 20, 2019 9:29 pm

lassevirensghost wrote:
Wed Feb 20, 2019 9:24 pm
Gill wrote:
Wed Feb 20, 2019 9:18 pm
lassevirensghost wrote:
Wed Feb 20, 2019 8:39 pm
I know there is a rule about the 60 day window meant for rollovers that would allow a tax free use of tIRA funds. Assuming the disbursement is qualified (hence no 10% penalty; home down payment), what is the point of the 60 day window if you contribute back the amount disbursed before the end of the year? Wouldn't the contributions deduct the amount of tax owed in an amount equal to the disbursement you made and effectively cancel it out? In that case, the only cost of the whole thing would be the gains missed between the exiting and reentry of the funds, yes?
Don’t understand your question. What tax owed are you referring to?
Gill
If you made a disbursement from your tIRA to pay for a down payment, you would still owe taxes next year on that disbursement but no 10% penalty. So I am asking if contributing an equal amount before the year is up back into the IRA would cancel out that disbursement and, therefore, the tax due.
Yes, if it was contributed (returned) within the 60-day period. Money is fungible.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

User avatar
ResearchMed
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Joined: Fri Dec 26, 2008 11:25 pm

Re: Tax implications of tIRA disbursement offset with contributions

Post by ResearchMed » Wed Feb 20, 2019 9:32 pm

lassevirensghost wrote:
Wed Feb 20, 2019 9:27 pm
ResearchMed wrote:
Wed Feb 20, 2019 9:24 pm
lassevirensghost wrote:
Wed Feb 20, 2019 8:39 pm
I know there is a rule about the 60 day window meant for rollovers that would allow a tax free use of tIRA funds. Assuming the disbursement is qualified (hence no 10% penalty; home down payment), what is the point of the 60 day window if you contribute back the amount disbursed before the end of the year? Wouldn't the contributions deduct the amount of tax owed in an amount equal to the disbursement you made and effectively cancel it out? In that case, the only cost of the whole thing would be the gains missed between the exiting and reentry of the funds, yes?
There are limits on the amount that one can contribute to a TIRA each year.
That 60-day rule (once per 12-month period) is a way to get short term use of the money, if needed.
Although there is the once-per-year restriction, there isn't any limit on the amount taken out this way. And there's no restriction on what one uses it for, etc.
The obvious risk is if it isn't paid back in time...

RM
By paid back in time do you mean 60 days or the end of the year? My point is I don't see the distinction in this case between the two, since there is no penalty to consider. If you contribute everything back it wouldn't matter if it was considered a rollover or not, right?

It would, as you point out, decrease the amount you are able to contribute to go beyond 60 days, but I am not maxing that anyway. In that case, does it matter in any other sense?
My understanding is that there is a relatively modest limit on what one can contribute each year to a TIRA.
That is, one cannot just make a tax-deductible contribution of, say, $250k.
So if one removed that amount, and went past the 60-day "return window", then that's tax-deferred money gone...
That's the point: One can NOT always just "contribute everything back" again, if outside the 60-day window.

RM
This signature is a placebo. You are in the control group.

Gill
Posts: 5774
Joined: Sun Mar 04, 2007 8:38 pm
Location: Florida

Re: Tax implications of tIRA disbursement offset with contributions

Post by Gill » Wed Feb 20, 2019 9:33 pm

ResearchMed wrote:
Wed Feb 20, 2019 9:32 pm
lassevirensghost wrote:
Wed Feb 20, 2019 9:27 pm
ResearchMed wrote:
Wed Feb 20, 2019 9:24 pm
lassevirensghost wrote:
Wed Feb 20, 2019 8:39 pm
I know there is a rule about the 60 day window meant for rollovers that would allow a tax free use of tIRA funds. Assuming the disbursement is qualified (hence no 10% penalty; home down payment), what is the point of the 60 day window if you contribute back the amount disbursed before the end of the year? Wouldn't the contributions deduct the amount of tax owed in an amount equal to the disbursement you made and effectively cancel it out? In that case, the only cost of the whole thing would be the gains missed between the exiting and reentry of the funds, yes?
There are limits on the amount that one can contribute to a TIRA each year.
That 60-day rule (once per 12-month period) is a way to get short term use of the money, if needed.
Although there is the once-per-year restriction, there isn't any limit on the amount taken out this way. And there's no restriction on what one uses it for, etc.
The obvious risk is if it isn't paid back in time...

RM
By paid back in time do you mean 60 days or the end of the year? My point is I don't see the distinction in this case between the two, since there is no penalty to consider. If you contribute everything back it wouldn't matter if it was considered a rollover or not, right?

It would, as you point out, decrease the amount you are able to contribute to go beyond 60 days, but I am not maxing that anyway. In that case, does it matter in any other sense?
My understanding is that there is a relatively modest limit on what one can contribute each year to a TIRA.
That is, one cannot just make a tax-deductible contribution of, say, $250k.
So if one removed that amount, and went past the 60-day "return window", then that's tax-deferred money gone...
That's the point: One can NOT always just "contribute everything back" again, if outside the 60-day window.

RM
Correct.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

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