28 Apr Can I take from my IRA to make a 2019 contribution?

Q. Can I withdraw $7,000 from my IRA and then deposit it back into my IRA as my 2019 contribution?
— Saver

A. Thanks for your question.

Taxpayers now have until July 15 to file their tax returns, and that extends the date for making 2019 IRA contributions until July 15.

The first thing to note is that for those who take Required Minimum Distributions (RMDs), you’re not required to take any distribution in 2020 because of a provision of the recently passed CARES Act.

An IRA account holder in 2020 whether in RMD mode — or even if you’re not required — can still choose to take an IRA distribution and it will be included as part of their 2020 taxable income, said Michael Maye, a certified financial planner and certified public accountant with MJM Financial in Gillette.

“Any 2020 IRA distributions taken are not considered to be RMDs since there is no requirement to take one,” Maye said.

So to your question: Yes, you can take out the $7,000 from your IRA.

Assuming you have enough earned income, you can contribute the $7,000 maximum to an IRA if you’re over age 50, Maye said.

But we’re not sure why you would want to.

Maye said you will potentially incur an income tax liability by first taking the IRA distribution, Maye said.

Why not just leave the $7,000 in the IRA?

“Now if taking the $7,000 IRA distribution doesn’t create any tax liability then doing a partial Roth IRA conversion with the $7,000 could make sense, assuming the person doesn’t need the current cash flow,” Maye said. “Even if there is a tax liability on doing a $7,000 partial Roth conversion, that could still make sense from a long-term perspective.”

Maye said there are several caveats.

First, taking the distribution could make more of your Social Security taxable.

It could also impact your Medicare Part B and Part D premiums.

And finally, it could push you above the $100,000 income limit to qualify for the New Jersey pension exclusion, Maye said.

Make sure to fully understand all the moving parts before taking any action, he said.

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This story was originally published on April 28, 2020.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.