Published August 30, 2012
Dear Dr. Don,
I have a small individual retirement account of about $30,000. I need to use that money on a short-term basis. I understand that I can take out the money and replace it within 60 days without penalty. My wife also has an IRA, which she can tap for 60 days without penalty. As I understand it, we can only do this once a year.
What I am planning is to remove an amount from mine, replace it in 60 days with money from my wife's IRA, then I have 60 days to replace the funds in her IRA account. Will that work?
-- Tom Turnaround
That will work. You are able to get what is effectively a 60-day loan of the money in your IRA account by taking the money out of the account and then reinvesting the money back into your IRA account within 60 days of the tax-free disbursement. Your wife could do the same thing with her account, using her tax-free disbursement to fund the rollover in your account. The open item is funding your wife's rollover 60 days later.
These are rollovers, not contributions, so there's no tax deductibility of the amount reinvested in the IRA accounts.
I'm a belt-and-suspenders kind of guy when it comes to meeting IRS standards, so I'd suggest you have a little overlap in the two accounts' activities. That may mean that, instead of 120 days, you plan on two 55-day loans for 110 days.
You have the one-year rule right. You can only do one rollover per year of your IRA account. The clock starts ticking on the day you take the money out of the account.
You do have to report the IRA tax-free distribution and rollover on your federal income tax return.
You don't say why you need this short-term loan, but I hope you're not swinging for the fences by investing in gold, commodities, the stock market or gambling.