Self directed Roth IRA move to more traditional Roth.

Submitted by Doug Crowley on Fri, 2015-10-02 21:54

I wish to close my Self Directed Roth IRA….pay off a hard money note on a property and then put the money back into a regular E-Trade Roth account within 60 days.

Is this a legal transaction.

This would be a prohibited transaction from the self directed Roth. Would the IRS see this as an attempt to get around prohibited transaction? Or since I am getting out of the self directed account it would be allowed.

The goal is to preserver the Roth for the grand kids….but be able to pay off the hard money loan on a property.



Submitted by Alan - IRA critic on Sat, 2015-10-03 22:40

If you already committed a prohibited transaction, there are no maneuvers that you can do afterward to eliminate the prohibited transaction. Sounds like you used your IRA as security for a loan which is a prohibited transaction. That results in this particular Roth IRA being deemed distributed. Since it is a Roth most of the distribution will be tax free, but you might have a 10% penalty on conversion money held under 5 years. What does your self directed IRA custodian say about this? Did they support taking this loan?

Submitted by Doug Crowley on Sun, 2015-10-04 13:58

Roth was not security.  Hard money loan for propery which did not sale. Now wish to pay off the loan. To use the self directed would be prohibited.  So insetad  my CPA advised closing it out. Use the money any way I wish and as long as I opened a new non self directe within 60 days I could preserve the Roth. Roth was started in 2000 and I am over 62.The advise sounds OK but there is almost no one in the CPA /legal world who knows for sure.  At least no one I have found so far.

Submitted by David Mertz on Mon, 2015-10-05 00:43

  • Whatever property you distribute from an IRA is the property that must be rolled to the new IRA.  You are not permitted to distribute non-cash property from an IRA, convert that property to cash (or exchange it for some different non-cash property), then roll the cash (or the different non-cash property) to the new IRA. If you want to roll cash to the new IRA, it must be cash that is distributed from the old IRA.  See, “The same property must be rolled over.”:  http://www.irs.gov/publications/p590a/ch01.html#en_US_2014_publink1000230568
  • Are you simply asking about distributing cash from a Roth IRA to be used as a short-term loan, then completing the rollover of the cash within 60 days?  You can do this subject to the one rollover per 12-months limitation across all of your IRAs.  However, if you miss the 60-day deadline, you will have no recourse to roll the money back into a Roth IRA and it will remain distributed.  The IRS is unwaivering in disallowing any relief with regard to the 60-day deadline when the funds are used as a short-term loan.

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