IRAHelp: IRA loans are barred, but a 60-day rollover can bridge a cash crunch

For a household whose IRA is the largest asset, the account starts to look like the emergency fund as food, energy, healthcare and other basics cost more. Sarah Brenner, director of retirement education at Ed Slott's IRAHelp, works through that scenario in a piece published October 7 on the publication's site. Her answer runs on two tracks: the rules bar an actual loan, and a distribution replaced within 60 days remains available.

The prohibition itself is blunt: loans from an IRA are not permitted, and IRAHelp characterizes a loan as a prohibited transaction that can turn the entire account into an immediate taxable distribution and put the retirement savings at risk. What the rules do allow instead is a distribution, taken at any time and for whatever purpose the owner chooses, with nothing governing the money while it sits outside the account. Putting it back through a 60-day rollover makes the maneuver resemble borrowing, though the article is explicit that it is not technically a short-term loan.

The deadline carries everything, and it is where the client conversation should start. Sixty days is the full window, and funds not deposited back into an IRA by then may leave the distribution taxable and subject to penalty. IRAHelp's less comfortable point concerns the aftermath: anything goes during those 60 days, but once the clock runs out, what happened during that period becomes the substance of a defense to the IRS. Self-certification, the procedure for excusing a missed deadline, helps only where the situation fits one of the 12 reasons for which it is permitted.

A second constraint sits alongside the clock. The once-per-year rollover rule applies to IRA-to-IRA and Roth IRA-to-Roth IRA rollovers, and traditional and Roth IRA rollovers are aggregated for that purpose, so the article's example of a Roth IRA distribution rolled to another Roth IRA can prevent a 60-day rollover of a traditional IRA distribution. It is a collision that costs nothing to check beforehand and a good deal to discover after the fact.

At the desk, the checks are how many IRA-to-IRA or Roth-to-Roth rollovers the client has already used this year, how the money returns by day 60, and which of the 12 self-certification reasons, if any, would fit if it does not. The clients most drawn to the idea are plausibly those with the fewest other places to find the money, since an IRA that is the household's largest asset is the asset least easily replaced; for them, the question that matters is whether the money returns by day 60.