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IRA Withdrawal Question From Reader
By JLP | April 24, 2006
I received the following question from a reader:
If I took some money out of my IRA for a first time home purchase and didn’t use all of it, can I put the money back without a penalty?
The short answer is no. Since money taken out from an IRA is considered a withdrawal rather than a loan, you cannot pay it back. That’s why I’m not a big fan of withdrawing money from an IRA, particularly a traditional IRA. For one the withdrawal is taxed if it is taken out of a traditional IRA. On top of that, the withdrawal from a traditional IRA could throw you into a higher tax bracket. Of course, you might be able to make contributions into the IRA to make up for the withdrawal, but that would take over two years to accomplish since the maximum contribution is $4,000 per year for those under age 50.
In my opinion, borrowing from a 401(k) is a better option IF you need money for a downpayment. However, remember that a 401(k) loan MUST be paid back. And, if you leave the company before the loan is paid back, it is considered a withdrawal and taxes and penalties will be due on the unpaid loan balance. Talk to your human resources department before you decide what is best.
Topics: IRAs | 1 Comment »
April 24th, 2006 at 5:20 pm
A small exception if applicable. If it is within 60 days of withdrawal, the reader can deposit the money into the same or another IRA taking advantage of the 60 day rollover rules.