60 day IRA withdraw rule
[u]Situation:[/u] We have a client who is 50 years old. He owns a real estate note in his IRA. The current custodian will no longer hold this asset, and we must find a new custodian. Within the context of the 60 day rule; would our client be within the IRS guidelines to take this note out of his IRA “in Kind” have it re-registered personally and put an equal amount of cash back in the IRA within 60 days to avoid taxes and penalty.
Thank you for your assistance .
Permalink Submitted by Alan Spross on Wed, 2012-04-04 18:53
No, that would not work.
Per p 23 of Pub 590, “The same property must be rolled over”, it states “if property is distributed from an IRA and you complete the rollover by contributing property to an IRA, the rollover is tax free only if the property you contribute is the same property that was distributed to you.”
Therefore, the choices are:
1) Do a direct transfer of the note to an accepting IRA custodian
2) Do an indirect rollover of the note to an accepting custodian
3) Distribute the note, report the taxable income and either keep the note personally or sell it. The basis would be the value upon distribution from the IRA. This does not seem like a good idea.
NOTE: The above rule is different than distribution of in kind property from a non IRA qualified plan. In that situation, the employee could sell the property and roll the proceeds over to an IRA within 60 days. But even with a qualified plan you cannot keep the property and substitute your own funds to complete the rollover.