Found the Roth IRA X Factor

[TheBajan]

Here in Michigan my atty told us that we could contribute to our IRA's is they were already established but that we couldn't open new IRA's. That was 8 months before we filed when we first consulted with him.

[kawh]

The nice thing about Roth IRAs is that you can withdraw your yearly contribution amounts without tax or penalty at any time. Only the earnings incur a 10% penalty if you're too young, and there are several exceptions to that.

[kawh]

I know this post is a little old but I had a medical procedure in 2011 and withdrew $12K from my Roth IRA to pay for it. I am now looking at receiving a tax return for about 5K from 2010. I was concerned that this would count as income since I plan to file BK shortly. But, now I am wondering if I can just deposit it back into my Roth IRA as a repayment. Thoughts?

If you withdrew the Roth IRA funds more than 60 days ago, and it sounds like it was in 2011, you can't "repay" the funds.
A valid 60-day rollover is the only way you could do a repayment.

You can do a contribution for the current tax year if you earned at least the amount you contribute. That can prevent a possible penalty for an IRA withdrawal done earlier the same tax year, as distributions are considered to be coming first from contributions, then withdrawals. If you contribute as much as you withdrew, it's like the withdrawal didn't happen, taxwise. Another useful thing about is that you can wait til you file the next year to make the IRA contribution, as long as it's before April 15th.

I've wondered what's to prevent someone from withdrawing $5000 from an IRA, making the $5000 contribution April 15th from a 2nd withdrawal (different tax year reporting), then doing a contribution the next year using a 3rd withdrawal, until finally they turn 59 and 1/2 and can withdraw with no penalty. If you withdrew in Jan, 2013 and used the money to make your 2012 contribution (to avoid penalty and/or tax), that would be the situation.

[alo]

Thanks, justbroke...I read the article. Very interesting and I won't pretend i didn't have to read a few paragraphs twice to get the jist!

Thanks, Kawh...I'm past the 60 days so I guess it would be like making a new contribution.

And, when I finally hire one, maybe the attorney will have me make the contribution then delay filing until after 6 months. Not my preference as I'd rather get going on it!