@TuckerdogAVL wrote:
I have a similar question. I thought it may help to ask here vs. starting a new thread. I recently sold some holdings in my IRA account that are underperforming. I have enough cash in the IRA now where I could fund 2022 Contribution. Can I use some of that cash to fund my 2022 contribution without penalty? I will be 68 at the end of this year if that matters.
The bottom line here is that pulling the cash out of the IRA is a taxable event, period. Once the money is in your bank account, you can do anything you want with it, but each transaction is treated separately. You certainly could use that money to make an IRA contribution if you have taxable income from working.
But I don't really see the point. You withdraw $12,000, pay $5,000 of income taxes, then contribute $7000 back into the IRA--how does that help you?
It sounds like you have a cash position in your IRA, you want to leave the cash in the IRA and call it a contribution. That's incorrect for multiple reason; for one thing, it's already tax-free, so you can't take a second tax deduction for it. You would have to withdraw it, pay the taxes, then put it back, which makes no sense at all.
Something you might want to do, depending on your tax bracket, is withdraw some IRA money, pay the tax, then contribute it to a Roth IRA. (Or you can do this directly via a Roth conversion.) Roth IRAs are not taxable when withdrawn in the future, and converting some of your taxable IRA to non-taxable Roth (which essentially means paying the tax now rather than later) can make sense for some people. Of course, you must have compensation from working to contribute to a Roth IRA, but it does not have to be the same money. (You don't have to put your specific freelance check into the Roth, you can do the Roth contribution with different dollars as long as you have received the compensation in some form.)
