Traditional IRA: out & back in?

[Guest Commuter Rex]

This $ is already in a rollover IRA, angry woman wants to pull $ out for non-first-time-R/E purchase or refinancing... and use it for 30 days and then put it back into the IRA. Can I please tell her she is making up rules, or is there something I don't know.

Thanks

[Appleby]

Rex,

It depends…

The once-per 12 month limitation applies to each IRA ( i.e. on a per IRA basis). Therefore, unless the assets being held in this particular IRA was already distributed and rolled over within the last twelve months, she is allowed to perform the distribution and rollover ( within 60-days). She may use the assets for any (legal) reason.

A rollover IRA ( AKA Conduit IRA) by definition holds assets that were distributed from a qualified plan or 403(b) account. A rollovers of assets distributed from a qualified plan, 403(b) plan or a 457(b) plan does not affect ( is not part of) this rule.

[John G]

I agree with Appleby completely, but lots of things can go wrong with this plan,. The chief problem would be failure to get the funds properly credited back into the IRA in 60 days.

I would also ask, why in this era of cheap money where everyone is eager to lend and interest rates are so low would anyone be compelled to go this route? You have internal family loans (helping mom with a better interest rate than she gets on her CDs), home equity loans, loans against 401ks, margin loans on non-IRA investments, borrowing from the real estate seller, real estate agency bridge loans, bank bridge loans, loans from employers, and a bunch of zero interest rate credit cards that sometimes run for months. When you are talking 30-60 days, there are lots of options with less disruption and risk of a administrative foul-up. You mentioned refinancing - why not imbed the needed funds into the deal?

I know you are relaying the problem - but I sure wonder why someone feels compelled to use a relatively tricky proceedure when there are easier ways to get the job done.

Remember, the biggest single problem with this idea is that your don't get the money back into the account in 60 days and that potentially triggers penalties and taxes.