Roth IRA Loans

[Guest carol lynn]

I'd appreciate any help on this issue. I haven't seen it addressed anywhere (which probably means I'm out of luck).

If I take an early distribution from my Roth IRA (to buy a house, but not a first house), can I later re-pay or refund the amount of the early distribution back into the Roth IRA -- even though my income would otherwise disqualify me from making contributions? In other words, can I "loan" money to myself from my Roth IRA?

Thanks in advance.

[John G]

No.

[Guest carol lynn]

Thanks, John. I was afraid that would be the case.

[BPickerCPA]

Carol,

Let's make it a qualified "no".

You can take the money as long as you replace it within 60 days. After than you're out of luck. If you do take the money and replace it within 60 days, you can only do this move once in any 12 month period, meaning once you do it, you can't do it again for at least a year after.

[Guest carol lynn]

Thanks for the qualified "no." What I'm trying to do is use the Roth IRA to help with the down payment on a new house, and not sell the old house until after I've moved out. Depending on market conditions at the time, I think I can replace the money within 60 days.

Thanks again,

Carol

[BPickerCPA]

The 60 days is absolute. If you replace it within 60 days, fine. If you can't then it's a distribution and cannot go back into the Roth.

[John G]

You should consider talking to your banker about a "bridge loan". You could also potentially borrow against an insurance policy, the home equity in the first home, etc. Another possibility is talk with your real estate agent. This is not a rare issue, but happens with enough frequency that various options have been developed. You might also inquire if the owner of the next house will do a delayed sale... you commit to buy at a specific future date for a specific fee. You can also design an option to buy at a specific price within lets say 120 days and give the owners a non-refundable fee. This is a very frequent tactic used by investors trying to assemble a patchwork of urban land for a larger development project. {my first landlord had an arrangement like this, the developers paid him every 6 months $2000 to keep their option open and four years later owned the entire block} You also have the option for finding a relative or business associate that is willing to front the money for a short period of time at a good rate of return.... compared to the 2% they might be getting for cash right now.

Corporate execs that get stock options often use similar techniques to execute the options without actually putting up the full value of the stock. We are not talking Tony Soprano style loan sharks here, just practical short term "bridge loans".

Your circumstances and credit worthyness would be a factor. The transaction costs are not cheap. Good luck.

Do not do the short term IRA borrow if you only "think" you can repay in 60 days. Too many things can go wrong and missing the deadline would be painful.

[Guest carol lynn]

Thanks for the very detailed reply. You've given me a lot to consider. I've been away from the site for a while, so please excuse the tardy "thank you."