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60 day loan from IRA

Technical topics regarding tax preparation.
#1
zl28  
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Taxpayer wants to distribute out 20k from his IRA at a major brokerage house
and then within 60 days return the money back to the IRA so nothing is taxable.

Client and I called the brokerage house and they alert us that the 60 days is really for
rolling over the IRA money and not to take as a loan for personal use;
that they are seeing the IRS crack down on this more and we should be careful.

I've never seen or heard of an issue where you are precluded from once a year borrowing
funds from your IRA and then contributing the funds back within 60 days to avoid
being taxable.

Curious if anyone out there has seen the IRS come to a client and say the above issue is taxable.
 

#2
sjrcpa  
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I suppose the question may be is it really a rollover if you put the money back into the same account. So what if it is put into a different or new IRA account?

IRS questions it because the 1099-R shows it as a taxablke distribution and the tax return does not.
 

#3
zl28  
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i'm reading in taxbook that it would be considered a rollover as long as redeposit into the same ira or a different ira within 60 days...and there there is a ltr. rul. 9010007
 

#4
HowardS  
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It's a valid rollover, redepositing into the same account. Take brokerage house tax advice with a grain of salt.
I suffer from depreciation.
 

#5
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In my experience I always ask the client to provide me with copies of the statements showing the date of withdrawal and date of deposit to put in my file. More times than not the IRS sends a CP2000 a year and a half later...it's nice to have the documentation ready to go when you'll need it for the response.
 

#6
taxnoob  
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A 5498 should be issued as soon as it is deposited back whether to the same brokerage or a new one. But the taxpayer will receive a 1099-R with Code 1.
 

#7
zl28  
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Thank you for info...does seem to be "brokerage house tax advice with a grain of salt." as HowardS says.

Wonder if brokerage house had an occurrence where the rollover was disallowed; or did someone do subpar research
and now every telephone rep is reading this script with misinformation.
 

#8
makbo  
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zl28 wrote:Wonder if brokerage house had an occurrence where the rollover was disallowed; or did someone do subpar research and now every telephone rep is reading this script with misinformation.

Most likely, they are tired of being blamed when the taxpayer screws up the rollover.

Also, part of the overall problem (from an outsider's view, such as the brokerage) is how you and the client keep on calling this a "loan" and "borrowing". It is neither. It is a distribution followed by a rollover contribution. Even if legal, just as with 401(k) loans, this is IMO a bad mindset for your client to get into (that his IRA is a source of loan proceeds). I strongly recommend using the 60-day rollover only when a trustee-to-trustee transfer is not possible.

Is he really using his IRA effectively, if the money is just sitting in a savings account, not even a CD? And if invested in the stock market, it's generally a bad idea to pay transaction costs to cash out and then back in for 60 days or less, and possibly miss a big increase in investment value.
 


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