Typically, after you've removed money from your individual retirement account, you cannot put the money back in. However, if you act fast enough, you may make the cutoff for completing a rollover of the distribution. Knowing the time limits and other restrictions helps you avoid costly tax errors.
The IRS allows you a 60-day window to put back any distributions taken from an IRA. When you take a distribution from your IRA, you do not have to specify whether you are taking a permanent distribution or whether you are merely rolling the money over. To complete a rollover, you have to put the money back in under 60 days to prevent the IRS from considering the distribution permanent. Though it sounds strange, the IRS does permit you to roll over money back into the same IRA account.
Time Limits on Rollovers
You can only perform one rollover per year, per account involved in the rollover. The one-year waiting period begins on the date you take your distribution, not the date you take the rollover. If you have multiple accounts, only the accounts involved in the rollover are affected by this limit. For example, if you took a distribution from IRA-A and rolled it into IRA-B, you could not take a distribution from either A or B and roll it over for 12 months. However, if you had a third IRA, that third IRA is unaffected by the time restriction.
Tax Reporting of Rollovers
When you successfully complete a rollover to put the money back in your IRA, you do not incur any tax liability. However, you do still have to report it on your taxes, which means using either Form 1040 or Form 1040A to file. On your tax return, note the amount of the rollover as a tax-free IRA distribution, enter "0" as the taxable amount and write "Rollover" next to it to indicate what you did.
Penalties for Putting Back Money Later
If you do not put the money back in your IRA within 60 days, it is treated as a distribution, and you have to pay any income tax due as well as a 10-percent penalty if you are under age 59 1/2. If you still want to put the money back in your IRA after 60 days, you are subject to the annual contribution limits set by the IRS, which as of publication is $5,000 for anyone under age 50 and $6,000 for people 60 and older. If you put back more than the annual limit, you must pay a 6-percent excess contributions penalty on the excess each year you do not correct it. For example, if you put back $15,000 and are under age 50, you make an excess contribution of $10,000, assuming you do not make any other contributions to the IRA for the year.
Based in the Kansas City area, Mike specializes in personal finance and business topics. He has been writing since 2009 and has been published by "Quicken," "TurboTax," and "The Motley Fool."