Self Directed — Roth Powerball ????

Submitted by Norman Cook on Sat, 2017-12-23 14:30

Since a self directed Roth can invest in almost anything, can one “rollover” say $200.00 from an Roth IRA and “invest” the $200 in a “self directed” powerball or other lottery ROTH tickets? Thus the winnings (gain on the investment) would be tax free.



Submitted by Ben Meyer on Sun, 2017-12-24 14:55

  • A lottery ticket investment would most likely be a prohibited transaction, even though it is not specifically mentioned in PUB 590-A.  In addition, it would not be an allowable rollover.  You would need to take a distribution in cash for the price of the lottery tickets.  Then you would need to rollover the lottery tickets into the IRA within 60 days by tendering them to the IRA custodian for the self-directed plan.  However, since the distribution was in cash, you are only permitted to roll over cash back into the IRA.  The rule is that you must roll over THE SAME PROPERTY.  Rolling over a lottery ticket would not be the same property.  .
  • If you were to direct the custodian of the self-directed IRA to purchase the tickets directly, it would most likely refuse.  But even if the custodian were to agree, the state lottery laws might require that tickets can only be purchased by natural persons, not IRA trusts, so the same rollover issues would be encountered.  This depends on the specific provisions of the applicable state lottery laws.
  • So be prepared for some extensive litigation if you proceed, with both the IRS and your state income tax authority, if any.

Submitted by Alan - IRA critic on Sun, 2017-12-24 17:58

It would be interesting to call Equity Trust or other large self directed IRA custodian and ask them if they support the purchase of lottery tickets in an IRA, most likely a Roth IRA. It is not an excluded investment in Sec 4975, but as Benn indicated, it is very possible that state lottery laws do not allow an IRA to purchase a ticket since tax revenue on the payout would be deferred or lost. Form 5498 reporting would probably show Code B if it got that far (debt instrument) and an unpaid ticket was held on 12/31. Otherwise, once paid it would just be cash with withholding issues. Most likely, someone has already investigated this and only go so far.

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