Individual Retirement Account - Borrowing

Borrowing

An IRA owner may not borrow money from the IRA except for a 2-month period in a calendar year. Such a transaction disqualifies the IRA from special tax treatment. An IRA may incur debt or borrow money secured by its assets but the IRA owner may not guarantee or secure the loan personally. An example of this is a real estate purchase within a self-directed IRA along with a non-recourse mortgage.

According to one commentator, some minor planning can turn the 2-month period previously mentioned into an indefinite loan.

Income from debt-financed property in an IRA may generate unrelated business taxable income in the IRA.

The rules regarding IRA rollovers and transfers allow the IRA owner to perform an "indirect rollover" to another IRA. An indirect rollover can be used to temporarily "borrow" money from the IRA, once in a twelve month period. The money must be placed in an IRA arrangement within 60 days, or the transaction will be deemed an early withdrawal (subject to the appropriate withdrawal taxes and penalties) and may not be replaced.

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Famous quotes containing the word borrowing:

    Well-borrowed and well-returned, then borrowing again will not be spurned.
    —Chinese proverb.

    Rhyme.

    Now that is the wisdom of a man, in every instance of his labor, to hitch his wagon to a star, and see his chore done by the gods themselves. That is the way we are strong, by borrowing the might of the elements. The forces of steam, gravity, galvanism, light, magnets, wind, fire, serve us day by day and cost us nothing.
    Ralph Waldo Emerson (1803–1882)

    Neither a borrower nor a lender be,
    For loan oft loses both itself and friend,
    And borrowing dulls the edge of husbandry.
    This above all: to thine own self be true,
    And it must follow, as the night the day,
    Thou canst not then be false to any man.
    William Shakespeare (1564–1616)