Monday, February 27, 2006

Using an "IRA rollover" As a Short-term Loan...

Just read an interesting article on IRAs, and in it, I happened to stumble over an excerpt that caught my eye:
Using an IRA Rollover As a Short-Term Borrowing Source Every so often you may face a temporary cash crunch when you desperately need some extra dough, but just for a short time. You will have the necessary cash in a month or so, but that doesn't help right now. A potential solution is "borrowing" from your IRA account, which can be done with virtually zero paperwork, no delays from balky loan officers, and no interest charge. You simply withdraw the needed funds and make sure you then replace the money within 60 days. You are considered to have made a tax-free IRA rollover. The money can be deposited back into the same IRA account it came from or into a different account, but each account can receive only one of these rollover deposits during any 365-day period. ("Direct" or "trustee-to-trustee" rollovers from another IRA into the account in question don't count for purposes of the one-year waiting period rule, nor do rollovers of distributions from qualified retirement plans.) But remember: If these guidelines are violated, you are considered to have made a taxable IRA withdrawal, and you may owe the 10% premature withdrawal penalty.
Kind of an interesting proposition. If you need cash for a few days, this would be a legitimate option...and you can do it once a year. Seems a little fishy to me though. Is it legal? Yes. Is it abusing the purpose of a rollover? I dunno.

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