Two questions about rules regarding the once-a-year 60-day borrowing-from-IRA privilege

Submitted by B. Anja Klink on Fri, 2019-07-26 07:34

Hello IRA experts!

Tax rules are complicated! I need your sage counsel.

Here are my two questions:

1) If I take a rollover (or distribution, if I don’t roll it back to the IRA) in stock instead of cash, do I have to repay a) the EXACT DOLLAR AMOUNT within 60 days to avoid the tax penalty, OR b) return the SAME AMOUNT OF SHARES, and suffer the tax consequences of the discrepancy in price? (Specifically, I rolled over 1 share of Amazon and 5 shares of Google stock [from my brokerage IRA account to my regular brokerage account with the SAME online brokerage company] to avoid a margin call. I’m not planning on returning the 1 Amazon share, just the 5 Google shares [if I can afford to do so within 60 days]).

^ My long-time tax accountant says I have to a) return the exact dollar amount (so, as the Google stock probably will go down in price, I’ll probably return 4 Google shares and supplement the difference in cash to return to my IRA, if that’s allowed). OR, if it’s better, I can just return the EXACT dollar amount of this distribution in ALL CASH.

^ My brokerage rep says I have to b) return the 5 shares of Google and pay the tax consequences.

Who is correct?

2) I will have to take ADDITIONAL distributions of stock (again, from my IRA account to my regular brokerage account) LATER this year (which I know that I cannot return to my IRA, owing to the only-one-60-day-rollover-loan-per-year rule). Will taking further (non-returned) distributions have any impact on my ability to use the 60-day borrowing rule?

Thank you for your help!

P.S. I am over age 59.5, so no issue with the 10% penalty!



Submitted by David Mertz on Fri, 2019-07-26 13:13

  1. Perhaps both the accountant and the brokerage rep are correct but your interpretation of their statements is wrong.  For a rollover of an in-kind distribution from an IRA you must roll over the same property was distributed.  You are not permitted to sell the shares, repurchase the shares and roll over the repurchased shares nor are you permitted to roll over any cash or other property in place of the distributed shares.  Any change in market price between the time the shares were distributed in-kind and the time these shares are rolled over is irrelevant.  In the case of a distribution of 1 share of Amazon and 5 shares of Google followed by a rollover of the same 5 shares of Google, the taxable result is the same as if just the 1 share of Amazon was distributed, regardless of any change in the market value of the 5 shares of Google.  You will have rolled over an amount equal to the FMV of the 5 shares of Google on the date of the distribution, so both the accountant and the brokerage rep are correct.  There is therefore no tax consequence for distributing and rolling over the 5 shares of Google.
  2. Distributions not rolled over have no bearing on the once-per-12-months rollover limitation.

Submitted by B. Anja Klink on Fri, 2019-07-26 16:50

Thank you, DMx, for your prompt answer! Much appreciated!So, let me recap to be sure I understand your explanation:1) To avail myself of the one-time-per-year-60-day-loan-privilege, if I “borrowed” 5 shares of Google, I simply “return” those 5 “borrowed” shares. Price of those 5 shares–at the time borrowed and the time returned–is irrelevant–because taking those 5 shares for this one-time-per-year-borrowing-privilege is considered JUST A LOAN (NOT a distribution, as long as they go back within 60 days).2) Therefore, regardless of whether the price of those 5 Google shares went up or down, I will have NO tax consequences–as it was just a one-time-per-year-allowed-60-day loan.3) Any OTHER distribution–BEFORE or AFTER the “5 Google shares loan” that I’ll send back–will have NO bearing on the eligibility of the Google shares loan. Have I understood your reply correctly? Do you have contact information for phone consultations? What do you charge for each question?  Such specialized tax matters scare me! Tax code is so intricate. I’m always afraid that I’ll inadvertently do something wrong, without meaning to. Thank you!   

Submitted by David Mertz on Fri, 2019-07-26 17:22

  • Loans are not permitted from IRAs.  You *did* receive a distribution but will follow that with a rollover of the same 5 shares to avoid the distribution of the 5 shares being taxable.
  • Since this constitutes a rollover of 5 of the 6 shares distributed, you are not permitted to roll over any other distributions that occur (or occurred) in the one-year period beginning or ending on the the date on which the 5 shares rolled over were distributed (a two-year timespan).
  • This is a public forum and discussions here are among members of the public and members of Ed Slott’s Elite IRA Advisor Group.  The information I provided is essentially what is described in IRS Pub 590-A and in section 408 of the tax code and section 1.408-4 of the Code of Federal Regulations.  This website has a Find an Advisor tool to locate a member of Ed Slott’s Elite IRA Advisor Group:  https://irahelp.com/find-an-advisor

Submitted by B. Anja Klink on Fri, 2019-07-26 20:35

Hi again, DMx.I think I understand what you’ve said, but let me further inquire.Much of what you and I are saying is a matter of semantics.I DO understand that I actually took a distribution of the 6 shares (1 Amazon; 5 Google). Owing to the 60-day-return privilege, I can send back the 5 Google shares with no tax consequences, if I do it within 60 days of the distribution. I would not be eligible for this privilege if I a) had done this in the year prior, and I cannot b) do another such distribution-and-return in the coming 1 year period. Correct? Now, as to taking other distributions that I DO NOT RETURN: they do NOT affect my ability to take this one-time distribution-and-return-within-60-days, correct? I want to be sure that OTHER distributions that I will NOT return (and HAVE NOT returned), do NOT somehow affect my privilege of the one-time-per-year-60-day borrowing privilege–CORRECT? *** Regarding finding an adviser, okay, I’ll look for someone on the link you shared.  I just figured that, because YOU were nice enough to answer my questions–and because you answered clearly–I’d ask YOU first!  I was a medical journalist for decades, so I appreciate a clear answer! Thank you, DMx! –Anja  

Submitted by David Mertz on Fri, 2019-07-26 21:11

Submitted by B. Anja Klink on Sun, 2019-07-28 21:24

Hi DMx,Thank you for patiently following up with all my clarifying questions. I’ve forwarded your replies to people who’ve discussed this matter with me, for their own edification.If you’re not an advisor, I hope you’re, at least, somehow getting paid for your specialized knowledge!Thank you again!–Anja 

Submitted by Alan - IRA critic on Fri, 2019-07-26 23:37

Submitted by B. Anja Klink on Sun, 2019-07-28 21:46

Hi Alan,Thank you for your additional insights. This quest to find the truth about properly handling the 60-day-return-to-IRA privilege has taught me 3 key things:1) Tax code is SO complex, one can be thinking one is proceeding properly, and not even aware that one SHOULD be checking how to proceed (never mind reaching the threshold of actually checking how to proceed).2) Tax code is so COMPLEX, one needs to seek the counsel of tax code specialists, for such issues as mine noted here, because even long-time financial experts (who are not specialists) may not know all the nuances.3) Tax code IS so complex: therefore, as a general policy, it’s best to avoid any unintentional mistakes by keeping transactions as simple as possible. Therefore, in light of these new insights, I am going to modify my behavior in these 2 ways. 1) I’m almost certainly NOT going to return the 5 Google shares to my IRA, so as not to subject my long-suffering accountant to the complex task of properly reporting this transaction.2) If I take a future distribution that I AM considering returning to my IRA, I will take THAT specific distribution in in good old straightforward USD–so I’ll sell the stock first, then transfer the USD funds. Then, if I want to return the distribution to avail myself of the 60-day rule, I just send back the exact dollar amount that was distributed. Easy peasy. Thank you for letting me know that 1) I need to have my broker provide the Fair Market Value of all my distributions (I think they automatically do that, but I’ll double check), and 2) where the distribution is reported on tax returns (I leave all that to my CPA; taxes are way too complex for me to do my own return). One final question: What does “IRA basis” mean? Thank you!–Anja

Submitted by Alan - IRA critic on Mon, 2019-07-29 00:18

Yes, distributing cash is more simple than “in kind” distributions of securities. IRA basis is the portion of your IRA account from non deductible contributions to a traditional IRA. Since these contributions do not get a deduction they have already been taxed, and you need to report them on Form 8606 to prevent them from being taxed a second time when you withdraw them. On the other hand, all contributions to a Roth IRA have already been taxed, so all your Roth contributions are Roth IRA basis, and will not be taxed again if the distributions are correctly reported. This is also done on Form 8606.

Submitted by B. Anja Klink on Mon, 2019-07-29 06:17

Hi Alan, Okay, I understand. My accountant is a CPA and has been doing my taxes for decades, so he’ll know what to do. I always strive to keep my taxes as simple as possible, but someone told me about the 60-day rule, so I considered availing myself of it.But now that I’ve learned the intricacies of replacing an in-kind stock-share distribution, I’m going to NOT do that.If I avail myself of the 60-day rule at all–and I probably won’t do so this year–I’ll do it in all cash, to keep things simple.Do you serve as an advisor? If so, what do you charge for each consultation? I’m semi-retired, so I can’t afford much, but it would be very useful to know an IRA specialist.Thank you for your help here. I appreciate it greatly!–Anja    

Submitted by Alan - IRA critic on Mon, 2019-07-29 14:49

No, am not an advisor, same explanation as DMx posted earlier. A simple rollover does not require an advisor, but perhaps you wish to hire one for overall investment advice.  Remember, if you only want to move your IRA from one custodian to another, you should do a direct transfer, not a rollover. Direct transfers are unlimited in number, and you do not even have to report them on your tax return.

Submitted by David Mertz on Mon, 2019-07-29 15:30

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