When strapped for cash, IRA owners have traditionally been able to take a short-term loan from their IRA, although this has been limited in recent years. Taxpayers may withdraw money from an IRA, without penalty or any tax liability, for up to sixty (60) days. The borrowed monies must be “rolled back” into an IRA within 60 days from the day after the date of the withdrawal, or income tax and penalties apply to the amount withdrawn and unreturned. Similar rules exist for rolling over one Roth IRA to another Roth IRA. The sixty day count involves calendar days, not business days. Keep in mind there is no extension for the sixtieth day falling on a weekend or holiday.
If a taxpayer fails to roll back the funds within 60 days, the withdrawal will be treated as a taxable distribution. Borrowers under the age of 59 1/2 also pay an additional 10% early distribution penalty, as well as possible state income tax. The IRS may waive or extend the 60-day rule if a taxpayer provides adequate grounds.
To report the short-term, 60 day “loan” from an IRA, a taxpayer must report the entire amount of the withdrawal, which is reported on line 15a of Form 1040 for the tax year in which it was taken. If the withdrawn funds were returned within the 60 day period, “zero” will be entered as the taxable amount on line 15b of Form 1040.
Taxpayers may take a “60 day loan” from a specific IRA account and return the funds to that IRA or a different account once during a one-year period. Anything more and the second and all ensuing withdrawals are treated as a taxable IRA distribution, again subject to income taxes and possibly the 10-percent early withdrawal penalty. Up until 2015, IRA owners could take one 60-day loan per account per year. But now it is one loan per year. Taxpayers may also face a 6% fine for excess IRA contributions. Unlike the “60 day” rule, the IRS does not have the authority to waive or extend the 12-month rule.
If you own a traditional or Roth IRA and are interested in taking a 60-day loan and have questions or concerns, call THE TAX EXPERTS at the Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation call 212-490-0704.
