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Anne
Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1888
Experience:  Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
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I had a rollover traditional ira that i took early withdrawals

Resolved Question:

I had a rollover traditional ira that i took early withdrawals because i was out of a job, in litigation with my previous employer, and needed to fund legal fees/life expenses.

The case has now settled. Are there any ways to put back the money in the ira? So as to avoid the tax and tax penalties that will be incurred when i file my return?

The settlement and withdrawal all happened in the same tax year (this year which has nit yet ended). It has been more than 60 days since the withdrawal.
Submitted: 1 year ago.
Category: Tax
Expert:  Anne replied 1 year ago.

Anne :

Hi

Anne :

Thank you for your using justanswer.

Customer: Any additional info needed?
Anne :

I am truly sorry to tell you that may not put the $ back into the old IRA

Anne :

However

Anne :

You can start a new one........you can write off the expense of the attorney you used since there was taxable income from the suit

Customer: However sounds promising :)
Anne :

However

Customer: Ok. So no hardship exclusion or now way to write a letter to irs ans ask for a waiver?
Customer: For example, is there a way to compromise where you pay the penalty/tax but are able to put the principle back in?
Anne :

give me just a second to double check.........I don't THINK so.......but I would rather double check

Customer: It is a pretty substantial amount of money. Thanks..
Customer: For example, regulatory discretion or latitude afforded tot he agency to grant such a request.
Customer: Thx for dbl checking.
Anne :

No problem.........there are 2 issues here

Anne :

1-is the money you took out taxable? yes, because your IRA was "pre tax" $

Anne :

2- is it subject to the 10% penalty.....(which is where the hardship may come int)

Anne :

As to the penalty.......are you permantey disabled?

Customer: My wife thinks so from time to time. But no, not in the way you are asking.
Anne :

I love a person with a sense of humor.....lol

Anne :

So, if you have to pay tax on the distribution, lets look at this another way

Anne :

The other way is to see what you can do to lower your total tax bill

Anne :

Ex: do you itemize deductions?

Customer: Yes
Customer: I willhave subst legal fee deductions
Customer: Home interest
Customer: Etc.
Anne :

If you do, then this would be a REALLY good time to donate all the stuff that we all say we will get rid of some day.......I think for you, today's the day

Anne :

You may pay your property taxes ahead

Customer: Good point.
Customer: One qucick follow up though
Anne :

in other words, pay both 2013 & 2014

Anne :

sure

Customer: In other fed agencies there are ways to ask for waivers, etc to rules and reg
Customer: Id there no way to do thatwith irs
Customer: You may still lose, but is there any harm in asking proposing
Customer: Prospectivley
Anne :

tell me what you want to propose?

Customer: Before 2013 is over
Customer: Letter from taxpayer or tax preparer
Customer: Explaining situation
Customer: And propsoing that th irs allow the money togo back into ira
Anne :

stating what....I'm trying to get a feel for what you really want

Customer: They irs allows you
Customer: 60 days
Customer: For a rollover to another ira
Customer: So this is like "a rollover"
Customer: In my tortured logic make any sense
Customer: The biggest hit is not the income tax
Customer: Or the penalty
Customer: Is the fact that i lose 25 years of still to be done deffered growth
Customer: Im in my 30s
Anne :

You can work with the IRS on alot of fronts.........but when you're talking pre tax money........its a different game........and you have limits on the $ amount you can put into an IRA per year, and judging from what you said, I suspect you're wanting to contribute more than $5000

Anne :

ahhhhhhhh I just read your post

Customer: Yes mid six figures
Anne :

You need a financial advisor to tell you where to invest the money so that you DON'T lose the potential growth (although this won't help you immediately , since the money is going to be taxed) but it WILL help you in the future..

Customer: If i could have timed it right this would not have been a peoblem
Customer: take money out
Customer: pay legal expenses
Customer: receive settlement, roll momey into ira within 60 days
Customer: thats why it struck me as an idea to pitch this to the irs. Im rolling over the money
Customer: back into the ira
Customer: it just to took me 90 days
Anne :

was your retirement that you received before or after tax? are they going to issue you a W2 or 1099?

Customer: The settlement or the ira withdrawal?
Anne :

settlement

Customer: W-2
Customer: It also had taxes witheld
Anne :

well that's good.............at least that withholding will help

Anne :

you can drive yourself crazy with the "what if": game

Anne :

Would I have advised you to take all of your money out of your IRA to fight your former employer

Anne :

no

Anne :

I would have told you to take out only what you needed

Customer: Oh, i did that.
Customer: Tere is still money in the ira
Anne :

smart boy

Customer: I tapped nondefrred assets first, but eventually had to dip in to the ira
Customer: Ok final ?
Customer: You don't think there is any value in sending the letter to irs?
Anne :

well you can't change the fact that its taxable.........so now you look to damage control

Anne :

Well, you'd be no worse off than you are now if they say no

Anne :

but you have to understand that its a long shot at best

Customer: Does it make a difference if it is sent now or in 2014?
Anne :

if it were me, would I do it? yes.......but I"m not called the bull dog in my office for nothing........because i never give up

Anne :

yes........it makes a difference

Customer: Ok. Many thanks for your feedback.
Customer: That is all from me.
Anne :

Please come back if you need more help.....I'll be happy to help you run damage control...

Anne :

and

Anne :

if you write the letter & win...will you let me know?

Anne :

oh

Customer: Yes. No prob.
Anne :

IRS wants letters that are very brief and to the point

Customer: Yes 1 pager i think can do it.
Customer: Byeif background, issue, and proposed resolution.
Anne :

Do you need another job........sounds like you'd make a GREAT tax pro

Customer: Ha ha. Thanks for the kind words. Now to bed and drafting the letter tomorrow.
Customer: Have a great day/night.
Anne :

You too.....and best of luck to you

Anne, Master Tax Preparer
Category: Tax
Satisfied Customers: 1888
Experience: Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses
Anne and 3 other Tax Specialists are ready to help you
Expert:  Anne replied 1 year ago.
Thank you very much for the excellent rating
and your very generous bonus!

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Anne
Anne
Tax Professional
1888 Satisfied Customers
Enrolled Agent with 25 Years Experience specializing Individual and Small Businesses