IRA 60 day Rollover Rule

[magellan0]

I have a total of three IRA accounts: IRA Account A101, IRA Account A102, and IRA Account A103. In this specific case, I made withdrawals of $20,000 from IRA Account A101, $30,000 from IRA Account A102, and $40,000 from IRA Account A103.

Initially, I operated under the belief that I had the flexibility to repay all three IRA loans within a 60-day period, which is commonly referred to as a Loan Roll-over. However, when I reached out to my Investment Brokerage Firm for guidance, they informed me about the rules governing IRA loans.

According to these rules, I discovered that I can only repay one IRA loan within a 12-month timeframe. Therefore, considering this limitation, my Investment Brokerage Firm recommended that I prioritize the repayment of Loan A103, which happens to be the largest loan amounting to $40,000.

In order to ensure that I am making the correct decision in accordance with the IRS rules, I would like to obtain a second opinion. Could you confirm whether it is indeed accurate that I can only repay one IRA loan within the designated timeframe?

[Bsch4477]

You can’t take a loan from an IRA. You must return the withdrawn amount within 60 days to avoid a penalty. In addition, you can perform an IRA-to-IRA rollover only once during 12 months. As of Jan. 1, 2015, the tax court ruled that all of your traditional IRAs are treated as one IRA for this purpose. (Before this date, the IRS applied the rule separately to each of your IRAs.)

[NCperson]

@Bsch4477 - interesting issue.  So are you suggesting that the brokerage firm is incorrect? and maybe the "language" ("loan") is getting in the way of the brokerage's response? 

[Bsch4477]

The brokerage response is either wrong or is being misunderstood. 

[dmertz · Accepted solution]

As others have said, the are IRA distributions, not loans.

The brokerage firm is correct that only one of these IRA distributions is eligible to be rolled over to a traditional IRA, and must be done within 60 days of you receiving the distribution.

As for the other two traditional IRA distributions, these could be converted to a Roth IRA (taxably) or rolled over to an employer plan like a 401(k) within 60 days of distribution because these transactions are not subject to the one-rollover-per-12-months limitation.

The problem could have been avoided by first doing nonreportable trustee-to-trustee transfers to a single traditional IRA and then taking a single $90,000 distribution from that IRA.

[magellan0]

thx dmertz...One of the reason, I'm posted this msg, is too help others in the future...I concur if I had more accurate information, I'd of done the "...trustee-to-trustee transfers to a single traditional IRA .." and thus be able to repay the entire withdrawal.

Many thanks!!!

[magellan0]

thx Bsch4477,

esp the tax law changes in Jan 2015....This is where some of the info I gotten was no longer applicable to the current CY2023 environment. thanks for sharing....:-)

Many thanks

[dmertz]

If you do not have an employer plan that can accept rollovers of the $20,000 and $30,000 distributions, converting them to Roth would be far better than simply keeping the distributions outside of a retirement account.  After converting to a Roth IRA you can take the money back out of the Roth IRA anytime and be in no worse of a situation than you are now.  If you are presently under age 59½ and before taking money out of the Roth IRA you wait until 2028 or age 59½, whichever comes first, you'll avoid the early-distribution penalty on a distribution from the Roth IRA of up to the amount converted.