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The 60 Day Rule for IRA Distributions & Rollovers


The Accounting Industry: Can Firms Keep Up?

IRAs are a great way to save for retirement. Everyone gets that. With a traditional IRA, you pay taxes on the distribution; with a ROTH IRA you pay taxes on the money when you put it into a ROTH plan. But can you use the money in your IRA in other ways?


Recently my wife and I decided to sell our home of over 40 years and look for another in a quieter, less congested, “easier going” area. We were fairly confident of the money we thought we could get on the sale of our home and our agent supported this as well. So we sought out a home of similar cost in an area not too far away. But of course we did not yet have the money from the sale of our home so we got approved for a similar amount.


We found a home we wanted, got a Pre-approval Letter from our bank for financing, and were — we thought — on our way to home ownership again. The plan was to pay off the loan with the money from the sale of our current home when it did sell. To our surprise, we were shot out of buying the “new to us” home when another buyer jumped in and offered cash for the property. We took a breath and went back to looking for another home. The same thing happen to us again… shot out by a cash buyer… Ouch!


Buying a home is an emotional, personal, financial and often stressful undertaking anyway. Combine that with the sale of a home you’ve inhabited for 40+ years (read “just think about all those memories”) and you’ve set yourself up for some very sleepless nights. So we decided we needed cash in a crazy “cash is king” market to prevent being shot out from a home purchase again. Ok great decision; but where to get that much cash?


We talked to our financial advisor about pulling money from our retirement and discovered the 60 Day Rule for Traditional IRA Distributions. (https://www.irs.gov/retirement-plans/plan-participant-employee/rollovers-of-retirement-planand-ira-distributions ) Basically, you have 60 days in which to roll over a Traditional IRA Distribution back into the original plan or another IRA plan without paying taxes or distribution fees.


Our financial advisor told us to think this through a bit and advised caution. Should financial institutions (banks), title companies, sellers, or an unforeseen event slow down the repayment or rollover of the plan(s), we would be liable for taxes on the distribution. That amount could be substantial. We did think about the risk and decided we would take it. We found a third home we liked even more than the first 2, offered cash, signed the papers, and are now living there (and caught up on the missed sleep… ). Luckily, our old home sold the same week as the purchase of the next home went through.


This move isn’t for everyone, but it worked for us. The IRS is going to want you to show that you did not use the distribution in the long run, so it is wise to get your accountant and/or tax professional involved. As with most tax issues there are exceptions but it is wise to research, ask questions and know what you’re getting into.

By: Jon Hoppe, Video Production & Photography at CROFT & FROST








Sources:

https://www.irs.gov/newsroom/for-colorado-wildfire-victims-irs-extends-2021-tax-filing-deadline-other-deadlines-to-may-16







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