Statesboro, GA · Member since 2016 · 44 posts · 13 votes
I'm just now beginning to learn about Real Estate Investing, so bare with my lack of knowledge.
I just saw a BP article about tax deductions and using the 60-day IRA Rollover to fund Real estate deals. Can someone clarify what this is? And how can it be used for tax deduction purposes?
Real-life examples are much appreciated!
Thank you!
Professional · Portsmouth, NH · Member since 2014 · 175 posts · 108 votes
10y
Whenever you do a 60-day rollover, you take constructive receipt of the funds/assets. You have 60 days to get those funds or assets back into another retirement account, or it becomes a taxable distribution to you. If you are under 59 1/2, you'll also pay an early distribution penalty.
It's important to note that the assets/cash must be returned to an IRA in the same state it came out. You CANNOT, for example, do a 60-day rollover of cash, take receipt of the cash, take that cash and purchase an investment property, and then attempt to roll that property into a new IRA. If cash comes out, cash has to go back in. If a piece of property is rolled out, the same property, with no improvements, must go back in, in order to avoid taxes and early distribution penalties.
I have personally run across a scenario where a guy took a 60-day rollover, used the money to buy private stock that was "certain" to double or triple in value in a short time, thinking he could pocket the return on investment and put the original amount back into another IRA within 60 days. Guess what happened? The stock tanked. If he sold it he wouldn't have enough to return the same amount to an IRA - and he'd be stuck with a taxable distribution & penalties. He called the custodian I work for, asking if he could roll the stocks into an IRA, so he could hold on to them to see if the value would go up. The answer was no, because cash, not stocks, came out of the original IRA. He ended up with a $1M taxable event!
Be very careful with 60-day rollovers. That article may have been written before new tax laws were enacted that now limit people to one 60-day rollover per taxpayer per year, regardless of how many accounts you have. It's very risky to be playing games with your IRA funds, be sure to be checking with a financial professional before you do anything.
Professional · Portsmouth, NH · Member since 2014 · 175 posts · 108 votes
10y
Whenever you do a 60-day rollover, you take constructive receipt of the funds/assets. You have 60 days to get those funds or assets back into another retirement account, or it becomes a taxable distribution to you. If you are under 59 1/2, you'll also pay an early distribution penalty.
It's important to note that the assets/cash must be returned to an IRA in the same state it came out. You CANNOT, for example, do a 60-day rollover of cash, take receipt of the cash, take that cash and purchase an investment property, and then attempt to roll that property into a new IRA. If cash comes out, cash has to go back in. If a piece of property is rolled out, the same property, with no improvements, must go back in, in order to avoid taxes and early distribution penalties.
I have personally run across a scenario where a guy took a 60-day rollover, used the money to buy private stock that was "certain" to double or triple in value in a short time, thinking he could pocket the return on investment and put the original amount back into another IRA within 60 days. Guess what happened? The stock tanked. If he sold it he wouldn't have enough to return the same amount to an IRA - and he'd be stuck with a taxable distribution & penalties. He called the custodian I work for, asking if he could roll the stocks into an IRA, so he could hold on to them to see if the value would go up. The answer was no, because cash, not stocks, came out of the original IRA. He ended up with a $1M taxable event!
Be very careful with 60-day rollovers. That article may have been written before new tax laws were enacted that now limit people to one 60-day rollover per taxpayer per year, regardless of how many accounts you have. It's very risky to be playing games with your IRA funds, be sure to be checking with a financial professional before you do anything.
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
10y
I concur everything Doreen mentioned above. 60-day rollover rule is NOT intended to fund your personal deals. While technically you could try to do that while you have the possession of your funds during 60 days - doing so in my opinion is like playing with fire and Doreen's example perfectly demonstrates that.
Specialist · Lakewood, CO · Member since 2014 · 1k+ posts · 1k+ votes
10y
@Ryan Beasley +1 for the other posts. Have you looked into using a SDIRA? If you aren't trying to get cash in your pocket right away from your retirement account you can self-direct your funds to do your deals. The profits must go into the IRA so it may not be what you are trying to accomplish but it is another avenue to explore.