60-day withdrawal without a penalty

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Dear Tax Talk,
I have several individual retirement accounts. I withdrew money from one of the IRAs and deposited it back within the 60-day period to avoid any penalty.

I know that I cannot withdraw from the same IRA again for a period of one year.

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My question is, since I have several IRA accounts (say, A, B and C), can I transfer the money from the IRA that I deposited money back in IRA A to IRA B and then withdraw from that account B for a 60-day period?

Is this a valid scenario for a penalty-free 60-day withdrawal? I am assuming the transfer from A to B is a direct transfer and not a rollover.

Please let me know.
— Srinivas

Dear Srinivas,
Since an IRA owner has 60 days to roll over distributions from an IRA, many people turn to their account for a short-term loan. The general rule is that if you take a distribution from an IRA, you can avoid tax and any applicable early withdrawal penalty if you put it back in an IRA within 60 days. You can do this as long as you have not made a withdrawal from the same account within one year. You can take one withdrawal from each account that you have, so long as you don’t violate the one-year rule.

For example, assume IRAs A and B each have $15,000 in the account. If you withdrew $10,000 from IRA A on July 1, 2012, and later rolled over that amount into IRA B by Aug. 29, 2012, you can’t take any more from IRA A for one year and you avoid the tax on the $10,000 withdrawal. IRA B has a $25,000 balance after your maneuver, which you can withdraw for up to 60 days as well.

In your case, you want to take it one step further and combine A and B after the withdrawal so that B has $30,000. Then you want to withdraw the $30,000 under the exception that you have not withdrawn previously from B. After reviewing various regulations and related material, I can’t find anything that doesn’t permit this and basically it would be the same maneuver as I suggested in the example. I can’t guarantee that it will work, so you’ll be taking your chances.

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