Correction: Best Choice re Traditional IRA draw - 60 day rollover deadline

[citygal]

CORRECTED: I am 67 yrs old & took a 50K draw from my Traditional IRA with a 60-day rollover. I cannot make the rollover due date of February 2, 2019 (just around the corner) I thought I would be able to have the funds but I cannot. I will not get the 10% penalty but will be hit on my 2018 income tax for it. I am in 24% Fed tax bracket. Live in Maryland. Looking at my immediate options...Do I try for a personal loan to pay this back to the Roth IRA account and deal with the interest and monthly payments or do I just take the income tax hit? Which is the better choice? Least expensive? Running out of time with Feb 2nd deadline. Thanks.

 

[LdiJ]

I am 67 yrs old & took a 50K draw from my Roth IRA with a 60-day rollover. I cannot make the rollover due date of February 2, 2019 (just around the corner) I thought I would be able to have the funds but I cannot. I will not get the 10% penalty but will be hit on my 2018 income tax for it. I am in 24% Fed tax bracket. Looking at my immediate options...Do I try for a personal loan to pay this back to the Roth IRA account and deal with the interest and monthly payments or do I just take the income tax hit? Which is the better choice? Least expensive? Running out of time with Feb 2nd deadline. Thanks.

Distributions from Roth IRAs do not result in any tax being due. That is the whole purpose of a Roth IRA. You invest after tax money and do not have to pay taxes on it when you withdraw it.

A traditional IRA distribution would result in tax being due.

 

[Taxing Matters]

Distributions from Roth IRAs do not result in any tax being due. That is the whole purpose of a Roth IRA. You invest after tax money and do not have to pay taxes on it when you withdraw it.

A traditional IRA distribution would result in tax being due.

I agree with the caveat that the distribution from a Roth must be a qualified distribution to be tax free. A qualified distribution is one that meets the following two requirements:

1. It is made after the 5-year period beginning with the first taxable year for which a contribution was made to a Roth IRA set up for your benefit, and
2. The payment or distribution is:
   1. Made on or after the date you reach age 59½,
   2. Made because you are disabled (defined earlier),
   3. Made to a beneficiary or to your estate after your death, or
   4. One that meets the requirements listed under First home under Exceptions in chapter 1 (up to a $10,000 lifetime limit).

The OP clearly meets the second requirement and very likely meets the first, given his/her age, but I'll not simply assume that to be the case.

 

[citygal]

SORRY - MY CORRECTION IT WAS A TRADITIONAL IRA

Distributions from Roth IRAs do not result in any tax being due. That is the whole purpose of a Roth IRA. You invest after tax money and do not have to pay taxes on it when you withdraw it.

A traditional IRA distribution would result in tax being due.

MY mistake it was a Traditional IRA

Distributions from Roth IRAs do not result in any tax being due. That is the whole purpose of a Roth IRA. You invest after tax money and do not have to pay taxes on it when you withdraw it.

A traditional IRA distribution would result in tax being due.

 

[Taxing Matters]

Well, then in the case of a traditional IRA the distributions are of course subject to tax unless you meet the requirments for a qualified rollover. That must be done in the 60 days or the distribution becomes taxable. The distribution will be taxed whenever you take out. So the issue here on whether to take out the loan depends on a lot of details I don't know, like how much you took out, why you took it out, what kind of interest & fees you'd pay on the loan, how much in tax you'd pay on distributions in future years if you make the rollover, and what discount rate to apply to determine the time value of paying the tax later rather than now, and the discount rate depends on what opportunities you'd have use the tax money some other way. In short, this becomes a financial computation that requires a few different bits of information to compute properly. It's not really a legal issue. If there is a lot of money involved here it may be worth sitting down with a financial expert to crank through the computations to see what path would benefit you the most financially.

 

[Zigner]

CORRECTED: I am 67 yrs old & took a 50K draw from my Traditional IRA with a 60-day rollover. I cannot make the rollover due date of February 2, 2019 (just around the corner) I thought I would be able to have the funds but I cannot. I will not get the 10% penalty but will be hit on my 2018 income tax for it. I am in 24% Fed tax bracket. Live in Maryland. Looking at my immediate options...Do I try for a personal loan to pay this back to the Roth IRA account and deal with the interest and monthly payments or do I just take the income tax hit? Which is the better choice? Least expensive? Running out of time with Feb 2nd deadline. Thanks.

Is this just a matter of the timing, or are you simply unable to repay it? If it's just a matter of needing a month or two more, then a personal loan may, in fact, be a good route, but if you don't expect to be able to repay it in the foreseeable future, then you should explore your other options.

 

[citygal]

Is this just a matter of the timing, or are you simply unable to repay it? If it's just a matter of needing a month or two more, then a personal loan may, in fact, be a good route, but if you don't expect to be able to repay it in the foreseeable future, then you should explore your other options.

TOOK 50K FROM THE IRA TO HANDLE DEBT
Originally I was going to use a HELOC to repay it but the bank will not be able to give me the HELOC until past the deadline. So when I discovered this with time running out I thought that if i got the personal loan then I'd just repay that when the HELOC comes through BUT the bank will not allow me to use the HELOC to repay the personal loan because it's not secured. I have an excellent credit score & would need to see where the best rate would be for a personal loan that I could get immediately & I don't know what other option I'd have in this small window.
So I feel caught between a rock and hard place.

 

[citygal]

I also thought about searching for a Secured Personal Loan or Home Equity Loan but I doubt if I could find somewhere that could get me the funds in the next 14 days.

 

[LdiJ]

I also thought about searching for a Secured Personal Loan or Home Equity Loan but I doubt if I could find somewhere that could get me the funds in the next 14 days.

You might just have to bite the bullet and pay tax on the distribution.

 

[LdiJ]

Recommendations: What are the best sites to do a personal loan rate comparison that will only result in a "soft search" on my credit report?

This is website for legal advice, not financing advice.

 

[citygal]

This is website for legal advice, not financing advice.

sorry

 

[Zigner]

I also thought about searching for a Secured Personal Loan or Home Equity Loan but I doubt if I could find somewhere that could get me the funds in the next 14 days.

We can't give referrals, as was pointed out above. I will say, however, that I recently used an online rate comparison site to obtain a personal (non-secured) loan at a very good interest rate in approximately 3 business days.

 

[citygal]

We can't give referrals, as was pointed out above. I will say, however, that I recently used an online rate comparison site to obtain a personal (non-secured) loan at a very good interest rate in approximately 3 business days.

Thank you