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Dear Dr. Don,
I am 65 and own a traditional IRA. Can I borrow from this for three months and then pay it back before year-end without
any tax consequences?
-- Steve Stash
Dear Steve,
While you can't borrow from an IRA account, you do have the ability to take money from the account for 60 days and there
is no tax consequence if the money goes back into another IRA account within that 60-day period. This is called a rollover
contribution.
According to IRS Publication 590, Individual
Retirement Arrangements:
"You can withdraw, tax free, all or part of the assets from one traditional IRA if you reinvest them within
60 days in the same or another traditional IRA. Because this is a rollover, you cannot deduct the amount that you reinvest
in an IRA."
If you don't make the 60-day deadline for the rollover contribution, and don't qualify for a waiver, the
funds are considered a taxable distribution. Because you are older than age 59½, you wouldn't have to pay the 10 percent
penalty tax due on an early distribution.
IRS Publication 590 is the definitive source for information on rollovers and waivers. But it's best to
assume that you won't qualify for a waiver and you can use the money tax-free and interest-free for only 60 days.
Bankrate's tax adviser George Saenz has a column – "On the honor system with IRA rollover" -- that explains the rollover mechanics in greater detail. However, don't let the
column's title lead you into a false sense of security about missing the 60-day deadline.
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