If I take money out of an IRA, have it sent to me, and quickly contribute it to another IRA, is the money taxable?

by Lisa M. Minniti-Soska, CPA | Jan 21, 2019

If I take money out of an IRA, have it sent to me, and in a quick fashion contribute it to another IRA, is it taxable?

If a distribution from an IRA or a retirement plan is paid directly to you, you can deposit it in an IRA or a retirement plan within 60 days. However, a 401(k) plan administrator or bank may automatically withhold taxes. If you want to avoid paying taxes, you will need to make up the amount withheld when you redeposit the money. For example, if you take a $50,000 distribution from your 401(k) plan, your plan administrator or bank may withhold taxes of $10,000. If you deposit the $40,000 check within 60 days in another or the same 401(k) or IRA, you will owe taxes on the $10,000 withheld. If you make up the $10,000 from other sources of income and redeposit $50,000, you would not owe taxes.  If you fail to deposit within the 60-day window, it would be treated as an early distribution and subject to taxes and penalties.
For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Lisa M. Minniti-Soska, CPA, is a partner in the real estate group of Mazars USA LLP in Fort Washington, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Financial FAQs

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.