IRA to IRA Exchange Options

[Randy Watson]

Assume an entity is wholly owned by a taxpayer's IRA. Would the sale of that entity to another IRA of the taxpayer be treated as a prohibited transaction? If the sale is between the two IRAs it doesn't seem like there is a disqualified person involved. Any thoughts (other than why on earth would we do this)?

[masteff]

Is there some part of this that's missing? Is one a traditional IRA and the other an SEP-IRA or Roth IRA?

I can do tax-free transfers between similar IRAs w/out any issue what so ever. Even if the transfer was the entire ownership of a company, I could move it from my IRA at trustee A to my IRA at trustee B.

Now, if they're different types of IRAs (like a traditional vs a Roth), then the answer, I think, is yes, it's a PT and you'd need to file for permission from the IRS to do it.

[Randy Watson]

Is there some part of this that's missing? Is one a traditional IRA and the other an SEP-IRA or Roth IRA?

I can do tax-free transfers between similar IRAs w/out any issue what so ever. Even if the transfer was the entire ownership of a company, I could move it from my IRA at trustee A to my IRA at trustee B.

Now, if they're different types of IRAs (like a traditional vs a Roth), then the answer, I think, is yes, it's a PT and you'd need to file for permission from the IRS to do it.

Why would the exchange be treated as a prohibited transaction if we have an exchange between a Traditional IRA and Roth IRA? Aren't we still missing a "disqualified person" under the prohibited transaction rules? Thanks, Masteff.

[masteff]

Why would the exchange be treated as a prohibited transaction if we have an exchange between a Traditional IRA and Roth IRA? Aren't we still missing a "disqualified person" under the prohibited transaction rules? Thanks, Masteff.

Maybe, for once, I'm just being a bit over-conservative. I sure can't put a finger on the "disqualified person" part of it. But the differences in tax treatment between traditional and Roth have me a bit leery of exchanging assets between them. It might well be perfectly fine and merely merit thorough documentation of the valuation.

[Appleby]

I agree with masteff on the IRA-to-IRA. This would not be a sale between the IRAs. Instead, it would be a trustee-to-trustee transfer. Just like if you had mutual funds, stocks or cash in one IRA and wanted to move it to another IRA.

If the IRA is a traditional IRA, the property could be moved between two traditional IRAs, or between a traditional IRA and a SEP IRA as a trustee-to-trustee transfer
The property could also be moved from a traditional IRA to a Roth IRA as a conversion.

As long as the movement is between IRAs- no prohibited transaction issue there.

The prohibited transaction issue would come into play if the property is being sold to by the IRA to a regular – say a regular checking / savings/brokerage account that is owned by the IRA owner or other interested party.

[jevd]

I agree with masteff on the IRA-to-IRA. This would not be a sale between the IRAs. Instead, it would be a trustee-to-trustee transfer. Just like if you had mutual funds, stocks or cash in one IRA and wanted to move it to another IRA.

If the IRA is a traditional IRA, the property could be moved between two traditional IRAs, or between a traditional IRA and a SEP IRA as a trustee-to-trustee transfer
The property could also be moved from a traditional IRA to a Roth IRA as a conversion.

As long as the movement is between IRAs- no prohibited transaction issue there.

The prohibited transaction issue would come into play if the property is being sold to by the IRA to a regular – say a regular checking / savings/brokerage account that is owned by the IRA owner or other interested party.

Just a note to Appleby's response with which I agree. The OP suggested a sale between the IRAs. If we are talking about a movement from the Traditional to the Roth as a conversion transaction, there is no sale as Appleby stated. It is merely the transfer of the assets in question from the Traditional IRA to the Roth with appropriate taxes being paid. No $ from the Roth are transferred to the Traditional.

This post has been edited by jevd: Nov 5 2008, 09:58 AM