IRA Funds to Purchase Home
A single individual wants to fund the purchase of a home using IRA funds at closing. His plan is to rollover the funds back to his IRA’s within the 60 day rollover period.
He has an inherited traditional IRA and a ROTH IRA. He also has a 401k.
He would like to withdraw the funds from his traditional IRA and ROTH IRA to fund the purchase.
Can he withdraw and rollover the funds back to both IRA’s OR does the “one rollover per year” rule preclude him from doing so and therefore must chose one of the two IRA’s to withdraw from?
Thanks.
Permalink Submitted by Alan - IRA critic on Tue, 2021-06-15 16:31
The one rollover within a 12 month period applies to all IRA accounts collectively. In addition, taking distributions for real estate transactions where a rollback is dependent on financing the purchase is risky and often ends with the 60 day rollover deadline not met, so these plans are risky.
He may not be able to take a distribution from an active 401k unless the plan offers hardship distributions, and these cannot be rolled over. The inherited TIRA is subject to beneficiary RMDs on some schedule, and distributions can never be rolled over from a non spouse inherited IRA, but at least they are penalty free. Owned Roth distributions can be rolled back, but only one distribution, so if he is going to tap the Roth IRA, he should take out a little more than he needs, as he can always roll the excess back subject to the 60 day deadline. But if he takes more than one distribution he can only roll one of them back even if he meets the 60 day deadline. Any distribution should be taken as late as possible to avoid using up some of the 60 days on the front end.
So the trade off is no rollovers of inherited IRA distributions, and they are taxable whereas the Roth distributions may be mostly non taxable (return of Roth basis), but can be rolled back if he can meet the 60 day deadline. Therefore the one rollover limitation would only come into play for the Roth IRA distribution(s).
If the purchase qualifies as a first main home purchase, and it falls through, he will have 120 days to roll back a distribution and it will not count against the one rollover limit.
With all these options, careful planning is needed, and in addition to the rollover issues (60 days and one rollover limit), he needs to think about the taxes or penalty due on any funds that he cannot roll back.