Can you re-contribute withdrawn Roth IRA contributions?

Question

This year I contributed the maximum of $5500 to a Roth IRA. I (foolishly) withdrew all of it later in the year, both principal and growth, bringing the balance of the Roth IRA to $0. Is it safe for me to re-contribute another $5500 to a Roth IRA this year or will I incur the 6% over-contribution penalty? This publication from the IRS leads me to believe that I won't be penalized: http://www.irs.gov/publications/p590/ch02.html However, some people have told me otherwise.

Answer 1

This is a question that you want to make sure with a tax expert. It appears based on the IRS documents that you can do so.

The question is will the confusing set of documents slow the IRS computers and delay your refund.

If you recontribute to a new account, I would even select a new custodian, within the 60 day window this should not be a big deal. If you go beyond the 60 day window it should be fine, just a little more complex to sort out.

You should contribute the original amount plus the earnings from the original investment; Otherwise the earnings from the first account will be taxed.

I would also fund the second account by the end of the calendar year to clearly mark the 2nd contribution and one for this year. You normally have until April 15th to contribute to an IRA, but doing so this year will help make sure all the paperwork matches.

Please talk with a professional before making the second contribution if you will be beyond the 60 day window.

Answer 2

From Pub 590:

Withdrawals of contributions by due date. If you withdraw contributions (including any net earnings on the contributions) by the due date of your return for the year in which you made the contribution, the contributions are treated as if you never made them. If you have an extension of time to file your return, you can withdraw the contributions and earnings by the extended due date. The withdrawal of contributions is tax free, but you must include the earnings on the contributions in income for the year in which you made the contributions.

This suggests that the gains, if any, are taxed, but no penalty.

I don't see a 6% over-contribution penalty applying as you will not have made a net deposit above the limit.