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Does this strategy make any sense?

Can you take an early IRA distribution near year's end and use the tax owed to offset tax deductions such as mortgage interest,etc.......
AND THEN.....
pay it back in the following tax year, within the 60 day window to avoid the penalty?

Thanks for any thoughts on this.
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No. of Recommendations: 0
Does this strategy make any sense?

Can you take an early IRA distribution near year's end and use the tax owed to offset tax deductions such as mortgage interest,etc.......
AND THEN.....
pay it back in the following tax year, within the 60 day window to avoid the penalty?


It doesn't make any sense to me, but then maybe I don't understand what you're trying to accomplish.

If you take an early IRA distribution, you have cash in hand. You will owe tax on (part of/all) the distribution + 10% penalty on the taxable portion of the distribution. Tax deductions such as mortgage interest, etc. reduce the tax you owe.

So, tell me again, why do you want to do this?

Ira

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Once a year, you are allowed to do a "rollover" from your IRA in which you take money from your IRA, do whatever you wish with it for 60 days. At the end of this period--and you cannot be one day late--you must have the money back in an IRA, usually not with the same trustee. The idea is to change trustees, but you can put the money back in the same account "changed my mind".
This action has no tax consequences and incurs no penalty. It doesn't offset any deductions.
It would be more difficult to account for if this were done at the end of the year, but it could be done. Sort of like if you have a short position open at the end of the year, your broker will report the proceeds but you haven't covered yet so there is no tax due.
The rollover isn't a "strategy", but it is a means of borrowing some temporary cash from your IRA if you have a temporary cash flow problem.

So, as a strategy, does it make any sense? No.

Best wishes, Chris
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Sorry for not explaining the reasoning behind the question.
Very low income this year, with sizable mortgage and property tax deductions. I am under the impression that the deduction would be useless without income or gains to offset it.

So an IRA distribution, which would be taxable, would be offset by the tax deduction from the mortgage this year.

Then, next year, but before the 60 day limit, the IRA money is repaid back into the IRA account.
This is allowed once a year without penalty and taxes. I don't really know what would happen with taxes next year or if this even makes sense.
But the aim was to balance income and deductions in a year with
little income.

Thanks for responding. Does this help?
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On second thought this just doesn't make any sense.
Forget I ever asked such a silly question.
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Does this strategy make any sense?

Can you take an early IRA distribution near year's end and use the tax owed to offset tax deductions such as mortgage interest,etc.......
AND THEN.....
pay it back in the following tax year, within the 60 day window to avoid the penalty?


It won't work. Let's say you take the distribution in December 2002 and put it back in January 2003. There is no 2002 tax liability because the rollover was completed within the 60 day window. To create a 2002 tax liability, you would have to keep the money out of your IRA for more than 60 days, after which you can't put it back in.

IOW, the fact that the rollover spans the change of tax year doesn't change the treatment.

Phil
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Sorry for not explaining the reasoning behind the question.
Very low income this year, with sizable mortgage and property tax deductions. I am under the impression that the deduction would be useless without income or gains to offset it.

So an IRA distribution, which would be taxable, would be offset by the tax deduction from the mortgage this year.


As others have noted, if you roll the distribution back into an IRA within 60 days, there are no taxes due.

To generate taxable income this year, how about a Roth conversion? Then you would pay taxes (at your low or zero rate) now and not pay them in the future when you withdraw the money.
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Thanks.
The Roth conversion idea came to me shortly after I realized how stupid the other idea was.
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