Using multiple IRAs for multiple short term loans
I have 2 IRA CDs with wells Fargo (One with 100K and the other with 50K). I
borrowed $28K and put back $25K from one of the CDs(the 50K one) in December 2010
and paid it back within the 60 day payback window.
The extra 3K not paid back is being used for college expenses for my daughter.
My Question:
I’m wanting to purchase some investment property and take advantage of the
60 day payback window on future real estate purchases.
Can I break up the 100K IRA CD at Wells Fargo and transfer funds into 4 separate CDs (25K each) at Wells and
borrow from each of them in 2011 and payback within the 60 day window with
no 10% early withdrawal penalty or tax consequences?
Permalink Submitted by Alan Spross on Mon, 2011-01-17 18:11
Yes, but you must partition the 100k IRA by direct trustee transfer, NOT by indirect rollovers. Some banks will not offer direct tranfers, but if you supply them with the name of your new IRA custodian, and if they make out the check to that custodian FBO your IRA and give you the check to deliver, that is still considered a transfer. You will then have 4 IRAs, each of which could issue you a distribution and you could roll it back within 60 days.
4 of these should not be a problem. However, if you did this will a couple dozen accounts, at some point the IRS could challenge your strategy as designed only to get around the spirit of the one rollover rule. So far they have not been doing this, but it is always possible. With only 4 such accounts, you should not have a problem.
Note that using CD investments in IRA accounts with frequent distributions does not work very well unless the CDs were kept to very short terms.
Permalink Submitted by Jose Morales on Wed, 2011-01-19 17:06
Please also be aware that the 4 new IRA accounts should also be at 4 seperate IRA custodians, not just taking 1 CD at Wells Fargo and splitting it into 4 CDs at Wells Fargo.
Permalink Submitted by mk foss on Wed, 2011-01-19 18:37
I know someone who has done this successfuly using the same custodian. The custodian is a mutual fund provider and each IRA is with a separate offering from that fund family.
Permalink Submitted by Alan Spross on Wed, 2011-01-19 19:11
I agree. While having these IRAs at different custodians might help avoid confusion, it is not necessary because the rule applies to each IRA account. If you are sure that these accounts are separate, ie have different account numbers, then you are OK. Also, the 1099R requirements apply separately to each account, so if you have 4 IRAs with the same custodian they cannot combine reporting on a single 1099R. Any tracking the IRA does is dependent on 1099R and 5498 forms or through an audit. Custodians are supposed to refuse rollovers they know are obviously in violation of the 12 month waiting period, but custodian enforcement is generally poor and inconsistent.
Permalink Submitted by Jose Morales on Wed, 2011-01-19 20:01
You may want to confirm what your financial institution considers an IRA “account” or “plan.” You may find that although you have 4 IRA accounts with one custodian, they are all considered to be a part of the same IRA plan, and therefore all reporting is combined within that plan. If Wells Fargo views all of your CDs as being part of the same IRA account/plan, and I am more than certain that they do, then you will run into trouble believing that having 4 CDs at Wells means you can complete 4 rollovers from each CD. You could always ask if they can split the CDs into different IRA accounts/plans but you will have varying levels of success with different custodians.
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