IRA Rollover Rules, Buying a Building in Your IRA and Hardship Distributions Highlight Slott Report Mailbag

By Joe Cicchinelli, IRA Technical Expert

Follow Me on Twitter: @JoeCiccEdSlott

IRAs are not only different, but the rules governing them can be difficult. The Slott Report Mailbag is here to wade through the intricate details and help consumers make the right choices for their retirement plans, and steer them to able, educated financial advisors who can help them fill in the blanks.  This week we received questions on the once-per-year rollover rule, buying a building with your IRA, and what qualifies has a hardship distribution. As always, we stress the importance of working with a competent, educated financial advisor to keep your retirement nest egg safe and secure. Find one in your area at this link.

1.

I have an IRA, originally rolled over to a managed asset account several years ago from a 401(k). I have a 457 account as well, which is not an IRA. I generally am not satisfied with them.

It was suggested that I should roll these over to a six-month IRA CD until next spring to save management fees with little return and to get a better handle on things after the election. I have read a lot on the web and found conflicting information about rollovers involving qualified plans and I am confused. It appears that if I roll them over even trustee-to-trustee that I would be able to do this only once a year with the anniversary being the date of the rollover.

Do both of these fall into that category so the one-per-year rollover rule will apply to these funds in perpetuity?

Many thanks,

A. Beauregard

Answer:
The one-rollover-per-year rule applies to IRA distributions, but it does not apply to transfers between IRAs. In a transfer between IRAs, you do not have use or control of the funds. There is no limit on the amount of transfers you can do between IRAs. The web does have conflicting and often inaccurate information. We always recommend working with advisors who are educated in the IRA rules.

If your 457 plan is a governmental 457(b) plan, then the funds in that plan would be eligible for rollover to an IRA. Distributions from an employer plan are not subject to and do not count in the one-rollover-per-year rule.

2.

I have an opportunity to buy a building in my IRA. My employer would rent the building, along with others. I am a signer on my employer’s checking account, but have no ownership of the business. Is this a legal transaction?

Diane Stimburys

Answer:
The prohibited transaction (PT) rules are very complicated. The result of a PT is a loss of all the money in your IRA, so extreme caution should be exercised. You are not allowed to conduct transactions between your IRA and certain disqualified persons or entities, such as yourself, your spouse, and others. Assuming you are not related to your employer and are not an officer or manager of the company, it appears that you are not a disqualified person. However, there are self-dealing rules so if you benefit personally from the IRA investment, it would cause a PT.

3.

Unfortunately, I had to make a withdrawal with penalties from my 401(k) to avoid foreclosure. Is this an exception to the penalties? If so, how would I be able to recoup the penalties paid. This was done in December 2011

Thank you,

Anne Simpson

Answer:
Unfortunately, there is no exception to the 10% early distribution penalty to prevent foreclosure. Additionally, that distribution is also subject to federal income taxes. While Congress had talked about changing the tax law to exempt 401(k) and IRA withdrawals from the 10% early distribution penalty when the funds were used to prevent foreclosure, it never became law.