Early withdrawal from Fidelity SARSEP IRA

[jcreynolds183]

So, I’m considering an early withdrawal from my old SARSEP IRA with Fidelity.  I know it’s not a great idea, because of taxes and penalties, but I have my reasons.  However, in the event that I’m able to, I want to have the option of putting the money back into the account within 60 days to avoid the IRS taxes and penalties.  When I was looking at the Fidelity transfer platform, I noticed that it said only employers could transfer funds into the account.  How then would I get the funds back in there within 60 days?  It did physically look like the funds would transfer (between Fidelity and my bank account), but that note gave me pause. Am I missing something?  Fidelity was not helpful at all via chat. 

[Bsch4477]

The statement you are referring to is for a contribution not a roll over. 

[jcreynolds183]

Ah… so it is viewed as a rollover rather than a contribution if the funds are returned within 60 days?  

[Mike9241]

or you could roll the money into your own IRA.  be aware that for an eligible rollover distribution, the default withholding rate is 20%.(check with your employer/fidelity). what that means is if you take a $10,000 distribution you'll only get $8,000. in order not to get taxed on the $2,000, you have to come up with your own $2,000 so the full $10,000 can be rolled within the 60 days. if you do this then the $2,000 will come back as an income tax refund or be applied in whole or part to taxes owed when you file your income tax return. 

[Bsch4477]

Yes, it is roll over. 

[jcreynolds183]

@Mike9241  Thank you for that info.  If I begin a withdrawal from my Roth, I do see where Fidelity will withhold taxes, like you mentioned. I’m not seeing that on the Sarsep Ira, though.  Are withholdings handled differently on that account type? 

Also, for a 60 day rollover back into the same account, is there a *formal* rollover process that must be followed, or can I simply transfer funds out and then back in (assuming I’m able to get them back in in time)? 

[SweetieJean]

I recommend doing a direct trustee to trustee transfer for the "rollback." 

[dmertz]

Mike9241's comment about there being 20% mandatory withholding is incorrect.  That applies only to rollover-eligible distributions from qualified retirement plans like a 401(k), not to a SARSEP or a Roth IRA.  Both a SARSEP and a Roth IRA are IRAs that are subject to 10% default withholding, but you can decline this withholding or request that more than 10% be withheld for taxes.

Sweetie Jean's is mention of a trustee-to-trustee transfer is only referring to how the funds are moved in and out of the IRA, not that it involves a transfer of an IRA.  Even if done by without involving a written a check, taking the money out and putting it back money is still a distribution and rollover that must be done within 60 days and there cannot have been a rollover of an earlier IRA distribution received within the one-year period ending on the date of this new distribution.

As others have implied, there is no statutory restriction specific to SARSEPs that prohibits rollovers into a SARSEP.

[jcreynolds183]

@dmertz Thank you, I feel like you’re understanding what I’m asking.  So, as I’m transferring the money, it asks what type of withdrawal it is, and gives only two options: early withdrawal, or early withdrawal due to disability.  Is it safe to choose one of these options even if my intent is to do the 60 day rollover back into the account?  Basically, I’m looking for a short term loan from myself, without incurring all the penalties. 

[Bsch4477]

Choose early withdrawal. You can’t pay back a hardship withdrawal. 

[dmertz]

There is no such thing as a hardship distribution from an IRA.  "Hardship" is a way to make a distribution from a qualified retirement plan like a 401(k) that would otherwise be impermissible due to being under age 59½ and still employed with the company providing the plan.

Absent a disability that meets the definition for an exception to the early-distribution penalty,  this distribution before age 59½ is an ordinary early distribution.