[net.taxes] Can you borrow from an IRA?

rtc@cca.UUCP (Richard Carling) (03/05/84)

   A recent net.taxes message said that it was possible to borrow
against an IRA for up to 60 days. What institution lets you do this?
I would like to sack away $2000 each year in my IRA and then borrow
against it when needed  (using the IRA as collateral).  Instead of
paying 15-18% for an unsecured loan,  I would be paying only 12% or
less for a secured loan (assuming todays loan rates). Does anyplace
let you do this?  Is it legal?  And in general,  does anybody know
just what guidelines exist in this area.

jhh@ihldt.UUCP (John Haller) (03/06/84)

You cannot borrow from or against an IRA in the traditional sense.  However,
if you close one IRA, you have 60 days to place the money in another IRA.
The money is in your hands during that time.  If you use this method,
you can only switch IRAs once a year.  If you have te check from the first
IRA made out to the trustee of the second IRA, you can move the money as
often as the trustee allows.

If you use an IRA as collateral for a loan, you have made a `prohibited
transaction', and the IRS considers that you have withdrawn the entire
amount.  This subjects you to taxation on all the funds in the IRA,
plus the 15% excise tax for early closing of the IRA.

				John Haller

wetcw@pyuxa.UUCP (T C Wheeler) (03/06/84)

No you can not borrow against an IRA in any way shape or form.
If you do, you lose all tax exempt status for the IRA.  If 
someone is doing it, they will lose the tax status plus 10%
penalty.  It might be possible to take the IRA out on a
rollover, deposit the money in a bank, take out a loan for
59 days, then pay off the loan, and put the money in another 
IRA.  This sounds a little dumb unless you are really in need
for less than 60 days.  You can only do this once per calander
year.  I suspect that this method of obtaining a loan using
an IRA would be looked on as a no no by the IRS.
T. C. Wheeler