Early Pension Withdrawal and New Baby

[Ra Mu]

Hello,

I had a pension with my employer and they decided to cancel the pension plans and disbursed the vested amounts. I decided to roll $1,000 over into a traditional IRA and withdraw around $7,000. This was around May 2022. I got married in September then had a baby in November. It is now 2/15/23. Since I withdrew the money prior to my baby being born, so it doesn't qualify for penalty exclusion.

My understanding is that I have until mid April to place the $7,000 back into a traditional IRA to avoid taxes and penalties. I also believe I have 12 months from the day my son was born to withdraw money from my IRA penalty free, up to $5,000 per spouse (but still incur income taxes, of course). My questions are: Can I deposit $7,000 into a traditional IRA prior to April to avoid (not evade) taxes and penalties on my 2022 return, then withdraw it again prior to my son's 1st birthday and still avoid penalties? And if so, is there an aging period that I need to leave the funds in the IRA for?

Thank you for your time,

Ray

[DanaB27 · Accepted solution]

Generally, you have 60 days to rollover a retirement distribution.  Since you withdrew the distribution in May 2022 it would be too late to rollover the funds.

Yes, you can make IRA contributions for 2022 until April 18th, 2023. But your distribution from May would still be taxable and subject to early withdrawal penalties.

Please see IRS Waivers of the 60-Day Rollover Requirement for additional information.

[Ra Mu]

Oh that's right. I forgot about the 60 day rule. Thank you for the thorough answer.