I accidentally put 100% of my money to Federal Withholding Tax instead of going to my checking account from ROTH.

[dessertrice13]

I withdraw some monies from my ROTH and supposed to go to my checking account. But few minutes after, I checked the transaction and see the 100% amount went to Federal Withholding Tax by MISTAKE. So instead of putting 0 or 10%, for some reason I must have put 100. What do I do? I called the bank and said they will try to reverse it but it looks like it is gone and completed in their system. 

Can somebody help me in this situation please?

@all recommendation would be highly appreciated.

[VolvoGirl]

Gosh,  you  probably have to get it when you file your 2023 tax return next April.  Can you take another ROTH distribution and have zero withheld?  That would give you the cash now.   

[dessertrice13]

I cannot. I almost emptied my ROTH account. Is there anyway I can get the money from IRS at least earlier than my tax return next year? It's genuinely a mistake :(

[dessertrice13]

Hi Miss @TaxLadySusan can you please give me an insight on how to deal with this matter? Thank you so much in advance!

[TaxLadySusan]

Thank you for your question.  Unfortunately, if the bank cannot stop the transaction, you will have to contact the IRS to request a reversal of the payment.  It is unlikely that they will do that.  You may get the money back in 2023 when you file your return as that additional money paid will likely put you in a refund situation.  A Roth contribution is not tax deductible so you would not receive the benefit from it on the return.  I understand, and it is unfortunate that the payment was classified incorrectly.  

I hope this helps.

[dessertrice13]

Thank you for your promt response Ms Susan.

Will I get penalize for this? I know there's a 10% penalty if you dont put the money back within 60days to IRA account. 

Am I right?

[TaxLadySusan]

Dessertrice13, 

Yes, unfortunately, if you do not meet the age and time held requirements you will get a 10% penalty on the distribution.  You have to have had the Roth for at least 5 years and be 59 1/2 years to avoid the early distribution penalty. 

TaxLadySusan 

[VolvoGirl]

Were you planning to put it back within the 60 days?  You can use other money to replace it.  

[NCperson · Accepted solution]

Spoiler

@dessertrice13 it is a little more complex than @TaxLadySusan stated.  There are ways to avoid toe 10% early withdrawl penalty even if you are not 59.5 years old. 

yes, if you are over 59.5 and any Roth account you own has been open for 5 calendar years, there is no tax and there is no 10% penalty.

But if that isn't true (i.e. you are under 59.5 year old OR the Roth has been open for less than 5 calendar years, there can be tax and there can be 10% penalties! 

There are 3 flavors of withdrawals, and the IRS presumes them to occur in this order:

1) Contribution dollars - 

2) Conversions dollars (these are dollars that came from a TRAD IRA) -

3) earnings dollars 

if you are over 59.5 and the Roth has been open for less than 5 calendar years, the earnings are taxable and there is no 10% penalty.  Everything else is tax free and penalty free. 

if you are under 59.5 and the Roth has been open for more than 5 calendar years, 

   Contributions - no tax and no 10% penalties

   Conversions  - no tax but 10% penalties apply to any conversion that occured in the last 5 years 

   Earning - tax and 10% penalties apply

if you are under 59.5 years old and the Roth has been open for less than 5 calendar years,. 

    Contributions - no tax and no penalties

   Conversions  - no tax but 10% penalties apply  

   Earning - tax and 10% penalties apply

there are exceptions that get you out of the 10% penalties.... but I won't go there. 

So if the money you withdrew is less than your contribution dollars, there is no tax and no 10% penalties (regardless of your age) , because the IRS presumes the Contribution dollars are all distributed first and therefore none of the Conversion dollars or earnings were withdrawn.....

[dessertrice13]

Thank you for the response @NCperson!

Oh wow wait, where do I find this information?

Wow this is mind-blowing to me. 

So does that mean IRS won't even take my money? Since my withdrawal amount was less than my contribution?

Sorry if I may sound dumb at this point, I'm trying to keep my faith that I can still get my money back at some point this year.

[VolvoGirl]

See IRS pub 590B for IRA Distributions
https://www.irs.gov/pub/irs-pdf/p590b.pdf

[fanfare]

you can take out your contributions at any time, so that is not an issue.

You can file in February, I usually have all my tax documents by the middle of February.

@dessertrice13 

[NCperson]

@dessertrice13 yes - it is mindblowing - it is in the IRS publications

Your best bet, as stated by others, is to complete your 2023 tax return in early February, 2024.  You will need to wait until you get all your tax documents, including the 1099-R from the Bank related to the Roth IRA.

What you will find is a large withholdings in Box 4.  I would expect Box 2a to be zero or not determined. it will then appear as a refund at the bottom of the 2nd page of Form 1040. Be sure to e-file and request direct deposit of the refund - as that makes it go faster.  Figure 3-4 weeks from the time you file until it is deposited in your bank account, in most circumstances. 

Be very mindful  of the distribution code in Box 7 as that will help the preparer determine how to treat this distribution.  But the key is that if you are confident that the distribution is less than your contributions, it is tax free with no penalty.

there are no 10% penalties for anyone over 59.5 years old in any circumstance, if that helps any.  

https://www.irs.gov/pub/irs-pdf/f1099r.pdf

[VolvoGirl]

Hmmmm, but since your withholding will be more than 50% of the total it might not let you efile.  And mailed returns take a lot longer to process and send the refund.  Maybe months.