"Borrowing" from your IRA......

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Submitted by flu on November 30, 2012 - 12:33pm

I think i figured out how one can "borrow" from your IRA money legally....

Well, it's not truly borrowing, because you can't really borrow from a IRA, like you can from a 401k...

But I think you can do something similar (minus the paperwork headache) and limited by how much money you have.

1. Setup up 7 different IRA accounts, with equal amounts...

2. Take a rollover distribution on account #1...

3. Do whatever you want with the money for up to 60 days.

4. Take a rollover distribution on account #2 and deposit into account #1 before 60 days from the distribution you took in account #1..

5. Repeat every 60 days from account#n+1 to account#n.

6. At the seventh rollver, start the rollover using account#1 and rolling that into account#7...

7. Rinse and repeat..

*IRS allows up to 60 days for you to complete the rollover.
*IRS allows also exactly 1 IRA rollover per account per year, but no limit on how many accounts you can roll from...

7 separate accounts should cover the 12 months before you can restart the rollover with the first account....

:)

Submitted by Diego Mamani on November 30, 2012 - 12:47pm.

flu wrote:
But I think you can do something similar (minus the paperwork headache) and limited by how much money you have.

1. You'll have a different kind of headache at the end...
2. You are limited to borrow one seventh of the total IRA funds you have.
:-)

Submitted by flu on November 30, 2012 - 12:49pm.

Diego Mamani wrote:
flu wrote:
But I think you can do something similar (minus the paperwork headache) and limited by how much money you have.

1. You'll have a different kind of headache at the end...
2. You are limited to borrow one seventh of the total IRA funds you have.
:-)

True, but you probably shouldn't be borrowing a big percentage of it to begin with...

Submitted by AN on November 30, 2012 - 12:49pm.

I find it A LOT easier to just roll my IRA into my 401k, then borrow from that.

Submitted by flu on November 30, 2012 - 12:50pm.

flu wrote:
Diego Mamani wrote:
flu wrote:
But I think you can do something similar (minus the paperwork headache) and limited by how much money you have.

1. You'll have a different kind of headache at the end...
2. You are limited to borrow one seventh of the total IRA funds you have.
:-)

True, but you probably shouldn't be borrowing a big percentage of it to begin with...

But it's no different from folks applying to a bunch of credit cards and then balance transfering the balance from one account to another with 0% transfer offers...

Submitted by flu on November 30, 2012 - 12:50pm.

AN wrote:
I find it A LOT easier to just roll my IRA into my 401k, then borrow from that.

Assuming you've already done that :)

Submitted by flu on November 30, 2012 - 1:02pm.

Actually, if one is also self-employed, and one presumbly sets up a 401k for being self-employed with loan options and then one rolls money into the self-employed 401k, that probably would work too (in addition to whatever other 401k one has elsewhere)...

Max contribution to all 401ks is limited to 16,500 (17,000 next year), but theoretically no limit on how much you can roll-in if your 401k plan allows it...

Maybe I'm wrong... Well, I'll find out next week when I talk to a cpa....

Me thinks the $50k loan limit is per plan. So if one is presumably employed at a full time job, and also if presumably one is self-employed with a solo 401k, one can borrow $50k from both (provided one has at least $100k in each plan).

So in this scenario, one needs to find a way to also get self-employed, and establish a solo 401k, which in general has better contribution rates anyway...

Submitted by AN on November 30, 2012 - 1:03pm.

flu wrote:
AN wrote:
I find it A LOT easier to just roll my IRA into my 401k, then borrow from that.

Assuming you've already done that :)


Depending on if your IRA is Roth or not. If it's Roth, you can withdraw the contribution and pay off your 401k loan, then take out another loan from your 401k.

Submitted by flu on November 30, 2012 - 1:05pm.

So assuming this is done... This is what I don't get...Why is the fvcking tax laws so damn complicated?

Why can't you just allow a normal person to borrow from a IRA? Why do people have to jump through hoops and are only allowed to borrow from a 401k type account? Makes no sense to me whatsoever, except people who have the time, patience, and financial resources and juggle things around to get a more favorable result....

Submitted by flu on November 30, 2012 - 1:14pm.

AN wrote:
flu wrote:
AN wrote:
I find it A LOT easier to just roll my IRA into my 401k, then borrow from that.

Assuming you've already done that :)


Depending on if your IRA is Roth or not. If it's Roth, you can withdraw the contribution and pay off your 401k loan, then take out another loan from your 401k.

Actually, you bring up a good point...I don't have a traditional Roth...But I do have a Roth 401k.... The problem is that while you are actively employed with a company, the company's plan typically doesn't let you roll money out of the account until you are no longer with the company...

That said, I don't typically like to take money out of a Roth account, because assuming the government keeps it's word (which at this point I question), there IS an advantage to keeping that account as large as possible....To let it compound and grow tax free (again, big assumption here they don't change the rules..If not at the federal level, maybe backassward CA will try to tap that...)...

Traditional IRA/401k on the other hand, I think is just an elaborate scheme between the financial institutions and the government to try to get people to accumulate a lot of deferred income so that by the time they retire, they can pay just as much taxes or if not more taxes than during their working years... and money in those accounts is like dead equity in a house that can't be utilized today....

That's why I think try to extort borrowing from it as much as one can, since who knows who well a 401k really will perform and who knows what sort of tax rates you'll see even if you did do well.

Submitted by DataAgent on November 30, 2012 - 3:14pm.

If want to use your IRA to fund a business, Benetrends can help you do that: http://www.benetrends.com/

Submitted by Cube on November 30, 2012 - 11:27pm.

Flu, I recall reading that there may be minimum seasoning requirements for IRA accounts (required by law? as a matter of course by custodians?) that you must meet before withdrawing from an account without penalty. Therefore you may need somewhere between 21 and 35 such accounts (and per Diego, you'd then only be able to borrow 1/21 to 1/35 of your IRA savings).

Also, for those non-self-employed 401k borrowing scenarios, separation from your employer usually requires you to repay the loan (within 60 days?) or it is considered a distribution. I've usually joked that loss of one's job could qualify one for a hardship withdrawal, but that would only waive the penalty.

Other than that hitch, I've been sorely tempted to borrow from my 401k. I look at it as investing in a fixed rate instrument with very low risk of default: me. In some market climates, that could be quite a good thing.

Submitted by The Truth on December 2, 2012 - 1:08am.

My fear is the government 'borrowing' from my IRA/401k...

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