Old Jack II

[TaxBird]

I still have this issue unresolved in my mind.(from my 04-16-07 post 'Help with IRA')

Regarding traditional IRA where TP took out $$ and replaced it within 60 days.

This is the part that has my brain short circuited. I can't reconcile the prohibition against 'taking loans' (or rather 'loans to disqualified persons') with the ability to withdraw $$ NT if it's paid back in 60 days and this type of transaction occurs not more than one time in a 12 mo period.

Pub (p.47) says "Borrowing money from it" . Sec 4975 (c)(1)(B) says "lending of money or other extension of credit between a plan and a disqualified person".

Either way, seems to me the fact of taking out the $$ and putting back made it a borrowing/loan.

I've currently pulled SS4975 to see if I can't dig out the definition of a 'disqualified person'. So far, I can't seem to find where he actually 'did' a prohibited transaction (not falling under 'disqualified person' as far as my first three passes through the section draw me to conclude) but I want to make sure.

In any case, seems to me I'm missing something. The brokerage statement detail shows the repayment as a 'rollover'. But I've come to not entirely trust what they say - at least not without independent confirmation.

Can anyone help me resolve this in my mind?

Thank you in advance.

[OldJack]

The difference is a loan document.

A taxable "distribution" from an IRA is not a loan and as long as it is put back into the same or another IRA within the 60 days it is not taxable as a distribution on the 1040. Now, the taxpayer will receive a 1099R form showing the distribution as taxable, but when the taxpayer files his 1040 he claims the money was put back and therefore nothing is taxable. The 1040 instructions say to print the word "Rollover" on the same line that it would be reported. No proof of the put back is required unless the taxpayer is audited, however, the IRS will know as the balance and transactions of the IRA is reported by the trustee with form 5498.

If there is an retirement plan loan document, as determined by the trustee/custodian of the plan making the loan payment, then no 1099R is issued so the IRS does not even know about the loan. If the taxpayer becomes in default of the loan, then the trustee/custodian issues the 1099R and the taxpayer must include the loan amount in taxable income. You can't actual take a "loan" from an IRA account, as only a qualified retirement plan can do that.

[TaxBird]

NOW I see.

Thank you. It was stuck in my head that the taking out and putting back was a 'de facto' loan when in reality, absent a loan doc, it is not.

Excellent! I see the distinction now.

And incidentally, it turns out I did it correctly.

Excellent (again)!