IRA 60-day loan - repaying with roll over/transfer proceeds from qualified plan?

[sportswhiz00]

Hi All,

Long time reader, first time poster. If I am trying to do a tax free 60-day loan from my IRA by withdrawing $X from my IRA on Day 1 and redepositing $X on Day 60, can my repayment on Day 60 consist of roll over or transfer proceeds from a qualified employer plan? Any insight (and citations!) would be much appreciated.

[Lou S.]

No, you can't repay the IRA with a rollover from a qualified plan. You have to repay with after tax dollars. Otherwise you'd permanently be escaping taxation on the funds taken from the IRA which the IRS tends to frown upon.

[ESOP Guy]

Actually he wouldn't escape taxation. He would get a 1099-R from the source IRA for the amount of the distribution and a 1099-R from the source qualified plan. He would only be able to show one rollover so one would not be taxed and one would not be taxed.

What he might be trying to do is get in effect 120 days by then saying I put in money for the qualified plan distribution 60 days after that distribution.

I have never looked up if that is possible or not but given the IRS' new found dislike of people using a series of IRA withdrawals in effect keep a series of tax free and interest free loans going I have my doubts.

So as to the original question I am with Lou S. I think the answer is "no" it won't work maybe for just a little different reason as to why.

[John G]

Taking a 60 day loan from your IRA or Roth is generally not a good idea. First, you disrupt your investments. Most of your funds should be invested. Second, you lose two months worth of tax sheltered growth/income. Third, you may stumble in getting the funds re-deposited, you forget, funds don't come to you on schedule, another "problem" comes up, custodian does not post the deposit in time, etc.

And Fourth reason - there are so many alternative ways to get access to funds for just 60 days. A signature line of credit, getting a vendor to accept delayed payment (such as a roofing contractor), using a home equity loan, margin borrowing, etc.