Self-Directed IRAs and the 60-Day Rollover ‘Short-Term Loan’

Self-Directed IRAThe law allows Self-Directed IRA, traditional and Roth IRA owners to take out cash for up to 60 days before the IRS deems the transaction a distribution, and applies income taxes and a 10-percent penalty in the event of an early withdrawal.

Some IRA owners in the past have taken advantage of this feature in the law to take out a short-term loan from one or more IRAs. By taking out the cash or securities, and replacing it within 60 days, the law allowed IRA owners to take advantage of an interest-free short-term loan.

It’s still possible, but a recent tax court ruling substantially restricted the process, essentially limiting the option to a single IRA transaction per year, regardless of how many separate accounts the IRA owner owns.

Nevertheless, here are the basics for those interested in pursuing this strategy:

If you take cash out of the IRA, you must replace the money in cash within 60 days. If you take assets out ‘in kind,’ then you must replace those specific assets. For example, if you take out 100 shares of ACME stock at $100 per share, you have 60 days to return 100 shares of ACME stock to the account. Whatever you took out of the account, you must replace with the same securities or face applicable taxes or penalties.

[tweetthis twitter_handles=”@iraexpert” hidden_hashtags=”#SelfDirectedIRA”]The law allows Self-Directed IRA, traditional and Roth IRA owners to take out cash for up to 60 days before the IRS deems…[/tweetthis]

This is true whether the assets have increased or decreased in value over the 60-day period. Except for very narrowly defined special situations, though, we prefer to keep things simple, and suggest simply selling securities within the IRA if you need to raise cash, and then withdrawing the cash. That way you aren’t exposed to wild market swings on assets you have to repurchase within a relatively short time frame. You can replace cash for cash within 60 days.

If you are under age 59½, you may be subject to a 10 percent excise tax on amounts you take out that aren’t returned to the IRA after 60 days.

The IRS makes certain exceptions to the 10 percent excise tax for so-called ‘hardship’ situations, including the following:

  • DeathSelf-Directed IRA
  • Permanent disability
  • To avoid eviction or foreclosure
  • To make a down payment on a home for a first-time homeowner of up to $10,000
  • To pay up to $10,000 in college expenses for the IRA owner or a loved one.
  • ‘Substantially equal periodic withdrawals’ under IRC Section 72(t), which essentially annuitize the IRA balance and commit you to a systematic payout over your lifetime or the joint life expectancies of yourself and a spouse.


If the assets or cash you are withdrawing have been in a Roth IRA for at least five years, the transaction is tax-free, even if you don’t return the money in 60 days. Otherwise, you must pay income taxes on any gains in the Roth IRA attributable to assets you’re withdrawing. Since Roth IRAs are funded with after-tax contributions, you already have a tax-basis, so the only thing taxable is the gain.

For traditional IRAs, distributions are taxable as ordinary income – even if a hardship exemption applies. The 10 percent penalty also applies to the whole amount if you are under age 59½. This is a powerful incentive to ensure you return the money withdrawn to the IRA within the 60-day timeline.

Note: This strategy does not normally work well with 401(k) plans, because plan sponsors must withhold 20 percent of the amount disbursed to cover any taxes. But you would still have to replace 100 percent of the money within 60 days. You’d get the taxes credited back to you, but you could still wind up with a jam at the end of the 60-day timeline.

Also, we reiterate that the rules have changed recently. You can no longer do this once per IRA account. You can only do this once per year now, regardless of the number of IRAs you own. You can make all the direct trustee-to-trustee transfers you like, with no problems from the IRS. But you can only take possession of IRA rollover funds once per year from a single account without triggering a distribution.

American IRA, LLC are experienced at handling rollover transactions of this type, particularly in the area of self-directed retirement accounts. We work with thousands of successful self-directed IRA owners, self-directed 401(k) owners, SEP and SIMPLE IRA owners from coast to coast. For more information, visit us on the Web at, where we have an extensive online library of articles, blogs and informational booklets and brochures covering all manner of self-directed IRA strategies. Or just give us a call at 866-7500-IRA(472). We look forward to working with you.




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