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I'm in a situation where I may need to sell a small portion of my IRA to help pay for a new home construction. The timing of this need is a bit precarious because my company is paying a bonus that will cover this cost, but the funds may not be available by the time I close on the construction loan.

If I sell some of my IRA, then later move my bonus into the same account, have I effectively avoided any taxes at all on the IRA withdraw (so long as I'm within the 60 day window)?

If not, can I roll this money into my wife's IRA to achieve the same result?

  • When you did this with the 401(k), how did you avoid the mandatory 20% withholding? The direct transfer to IRA avoids this, but the holding occurs if the money comes through your hands. – JTP - Apologise to Monica Aug 13 '13 at 13:48
  • I'll edit my question...now that I remember it I did a direct transfer from my 401(k) to the IRA... – Tim Reddy Aug 13 '13 at 14:38
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Do I have that same luxury in this situation?

Yes you can do a rollover but watch the 60 day rule, especially if you can't just walk into the bank branch to start or complete the transaction. The days the check is in the mail count.

The new and the old account will be locked out for a year, meaning they can't be involved in another roll over. They can be involved in a direct transfer, or a transfer . Make sure that it has been a full year since a rollover involving that account.

The distribution can be full or partial, and the target account can be new or existing. Make sure that the account types are the same traditional IRA to traditional IRA or Roth to Roth. Otherwise you will be doing a recharacterization which will involve additional forms and taxes.

The roll over can bridge from one tax year into another, but make sure the IRS is knows that is the way it worked.

If I sell some of my IRA, then later move my bonus into the same account, have I effectively avoided any taxes at all on the IRA withdraw?

From the IRS: The same property must be rolled over. If property is distributed to you from an IRA and you complete the rollover by contributing property to an IRA, your rollover is tax free only if the property you contribute is the same property that was distributed to you.

Cash is cash, but you can't claim that you deposited X% of the house.

If not, can I roll this money into my wife's IRA to achieve the same result?

Your wife can roll her funds from one account she owns into another account she owns. Thus achieving the same tax free short term borrowing . But you cannot move funds from your account into her account. There is mixing of the funds, unless you inherited the account from your spouse.

withdraw up to $10K from your IRA for a qualified first time residence purchase

This could be used as an emergency. If you pulled 25K from the account, but as the sixty day window was about to close, you could only come up with 15K the rest could be considered for the purchase of a 1st home. There are additional rules and timelines involved. Determine if this is possible before making the disbursement.

  • +1 In fact, aren't IRAs prohibited from investing in real estate, art objects, wife's jewelry etc anyway so that depositing X% of the house won't work anyway? – Dilip Sarwate Aug 13 '13 at 12:23
  • IRA's are not prohibited from investing in real estate (in fact many use self-directed IRAs just for that), but it is prohibited from investing in owner's home. That is a related person, dealing with related persons invalidates the whole IRA (same for wife's jewellery, as opposed to vaulted bullions for example). – littleadv Aug 13 '13 at 17:30
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If not, can I roll this money into my wife's IRA to achieve the same result?

Definitely not. Your wife's IRA doesn't belong to you in any way. The I in IRA stands for individual.

Do I have that same luxury in this situation?

Yes, you do. I'm not sure if the deposit to the same account will be considered "roll-over", but deposit to a different account will definitely be considered as such.

But you need to make sure that you time it right, otherwise you may end up with a non-qualified distribution which will be taxed and also charged the 10% penalty on it, and excess contribution in the other account that would be assessed a 6% penalty as well (every year until you withdraw).

You can withdraw up to $10K from your IRA for a qualified first time residence purchase, you may want to consider that.

  • +1 In fact, the rules about depositing back into the same account within sixty days need to be read carefully since the IRA owner is effectively getting an (interest-free) loan from the IRA, and the IRA owner is prohibited from taking loans of any kind from the IRA. If the re-deposit is indeed permitted, then the one-year prohibition on rollovers will most likely apply to any further "loans" of this kind. – Dilip Sarwate Aug 13 '13 at 12:20

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