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Greetings, Stilley, and welcome to Fooldom.

<<I recently took a distribution from one of 4 retirement plans I have accumulated over the years. It was in the neighborhood of $7000, which resulted in about $5800 coming to me. I am looking to reinvest as much as $3000 of it back into an IRA. Will all of this be deductible, or does it fall under the yearly limit on IRA contributions? Anybody know? I'm just concerned that since it is not a roll over, all of what I put back may not be deductible. If it isn't I'll invest elsewhere since I am already conceding that i will pay some penalty.>>

It all depends. If YOU got the check directly, cashed it, and are still within 60 days of receipt, then you may roll it to an IRA before the 60 days expires and avoid taxation and penalty on the $5800. If you add the amount that was withheld for taxes ($1200?), then you'll avoid taxes and penalty on the entire $7K. If you don't add the withholding to the rollover, it will be treated as a distribution for taxation and penalty. The penalty applies only if you are under age 55 for a retirement plan distribution. It amounts to a 10% excise tax that is over and above ordinary income tax on the sum distributed. If you're age 55 or older, it doesn't apply. Younger than 55, then it does.

If you're outside the 60-day window, you're out of luck regarding the taxes and penalty, assuming the latter applies. The money will NOT be eligible for a rollover to the IRA. You can still put $2K in an IRA, though, provided you have wages equal to that amount during the year. It may or may not be deductible depending on your income, filing status, and coverage in a retirement plan at any job you held during the year. See IRS Pub 590 for details.

If all else fails, you can still invest the proceeds in a regular, taxable investment. Ain't life grand? :-)

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