Tax implications of tIRA disbursement offset with contributions

[lassevirensghost]

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?

[Gill]

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

[ResearchMed]

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

[lassevirensghost]

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.

[lassevirensghost]

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?

[Gill]

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

[ResearchMed]

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

[Gill]

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