temporary IRA loans
Potential client has two separate IRA accounts and has fallen on hard times in terms of cash flow. He wants to take a distribution from one of his IRA’s with the intent of replacing the money within the 60 day period, then tap the other IRA again replacing the money within the 60 day period. I realize there is a restriction of one distribution within a 12 month period for his IRA, but is this per account or does IRS limit this to one distribution for all of his IRA’s in aggregate.
If this strategy is permissible, can he subdivide the two existing IRA’s into additional IRA’s to stretch this startegy out further?
Thank you in advance!
Chazz56
Permalink Submitted by mk foss on Fri, 2009-09-11 02:27
Actually you can do what you describe. The one-per-year restriction is per account, not per taxpayer. I have a client with a number of IRAs who has done this from time-to-time. There is an example in IRS Pub 590 showing that it works, although the example is not as straight forward as you have described it.
You can break up an IRA into as many different accounts as you’d like. Watch for any per account fees that make this strategy less attractive.
Permalink Submitted by Alan Spross on Fri, 2009-09-11 02:35
The one rollover per 12 month period is per IRA account, not over all accounts. With two accounts he could do one of these rollovers for one account and then for the other account with no problem. However, at some point there is a limit where the IRS might feel that too many IRA accounts were created in order to finance 60 day interest free loans and declare one or more of the rollovers as a disallowed taxable distribution. I have no idea where that point might be, but it might be influenced by the balances in each account and when the extra accounts were created.
Of course, any additional IRA accounts must be created by direct trustee transfer or the creation itself will use up one rollover for an entire year with no advantage. Finally, if he fails to get the funds back within 60 days, he cannot expect any IRS relief for exceeding the 60 day rollover deadline because the IRS is not sympathetic to the use of IRA monies for short term loans.