Repaying a Loan Taken Out of Your IRA

Dear Dr. Don,

Hello, I read your column about short-term, 60-day loans from an individual retirement account. How do you withdraw funds from an IRA? Can a person redeposit the funds back into the same IRA? Or can the money be deposited into a new IRA?

Thanks,

- Alan Alternatives

Dear Alan,

In a recent ruling, the U.S. Tax Court came down with a limit of this practice to one rollover per year for all of an individual's IRAs combined. In other words, it did not limit withdrawals to one per account; this ruling is more restrictive. While the court ruling was specific to the individual case, the IRS said it intends to follow the tax court's ruling. This shouldn't affect trustee-to-trustee rollovers, which wouldn't help you to get the loan you mentioned anyway.

IRS Publication 590, Individual Retirement Arrangements, addresses rolling over monies from one IRA into another. It states, "You can withdraw, tax-free, all or part of the assets from one traditional IRA if you reinvest them within 60 days in the same or another traditional IRA. Because this is a rollover, you cannot deduct the amount that you reinvest in an IRA." You can put the money back into the same IRA. Discuss this option with your current account provider before taking the money out of the account.

Generally, you should use IRA rollovers as a source of short-term funds. If you're stuck in a unique situation, it can be a one-time or once-a-year solution to a cash problem.

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