403b Withdrawals, 60-return provision for 20% tax credit, separate from annual IRA contribution

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I made a 403b withdrawal completed in September and 20% was set aside for the IRS. The taxable disbursed amount was returned to an IRA-CD prior to the 60 day expiration date as the 403b did not allow re-deposit because I am no longer employed with the company sponsoring the 403b.

I was told that 1) I would not be taxed on the taxable amount (receive credit for the IRS taxes withheld, my State did not require withholding) because the taxable amount was returned to a qualified retirement investment account, an IRA-CD; and 2) I still qualify to make the annual $7000 IRA contribution to my traditional IRA account because the transactions are deemed separate.

In addition, I understand that I can make an additional withdrawal under the same circumstances this month, but the 60-day limit expires in February in a different calendar year, 2024. It appears that the calendar year would not affect the transaction since it occurs prior to the end of the tax year filling date (April 2024).

Neither of the withdrawals are direct rollovers, specifically they are deposited to my banking account, then returned (if possible for the December transaction) within the 60-day period.

Please verify that this information/process is correct.

Thank you for your expertise.

Best Answer

  • PhillipB
    PhillipB FreeTaxUSA Team
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    Hello, and thank you for your question.

    1.) Yes, the taxable amount will not be taxable because you completed the rollover within the 60 day window. Your withheld money should be refunded with your tax refund (depending on other tax return factors).

    2.) You can still make the regular IRA contribution as long as you meet the other requirements to be eligible to make an IRA contribution.

    3.) If you make another withdrawal, you would have 60 days to roll it over regardless of whether the 60 days straddles the end of a calendar year or even if it straddles the filing deadline.

    Let me know if there is anything else that I can do for you.

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