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Posted by jhatpro on November 11, 2007, 4:22 am
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My wife and I are thinking of loaning a portion of our
SEP/IRA to a family member so he and his wife can buy a
house. The money we provide would, of course, be pre-tax
dollars. When would we be taxed -- upon withdrawal of the
entire amount from our SEP or as we receive monthly mortgage
payments? Thanks for any advice!
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Posted by Harlan Lunsford on November 12, 2007, 12:11 am
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jhatpro wrote:
> My wife and I are thinking of loaning a portion of our
> SEP/IRA to a family member so he and his wife can buy a
> house. The money we provide would, of course, be pre-tax
> dollars. When would we be taxed -- upon withdrawal of the
> entire amount from our SEP or as we receive monthly mortgage
> payments? Thanks for any advice!
First of all, how in the world do you and wife have a
SEP/IRA? Do you mean that each of you have your own separate
INDIVIDUAL accouns? Note that's what the I in IRA stands
for. Anyway.....
Unless all the contributions to all IRA's are pre tax, any
withdrawals will be taxable in the ratio of total to
deductible portions, plus there could be a 10% excise tax
(penalty) on your withdrawals if before the time you're 59
1/2.
ChEAr$,
Harlan Lunsford, EA n LA
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
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Posted by Herb Smith on November 12, 2007, 12:11 am
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> My wife and I are thinking of loaning a portion of our
> SEP/IRA to a family member so he and his wife can buy a
> house. The money we provide would, of course, be pre-tax
> dollars. When would we be taxed -- upon withdrawal of the
> entire amount from our SEP or as we receive monthly mortgage
> payments? Thanks for any advice!
Very BAD plan. Pledging your IRA account as collateral or
loaning any of it out would result in IMMEDIATE
disqualification of the tax deferred status of the account.
All taxes would become immediately due, plus a 10% penalty
(possibly 25% in the case of a SEP-IRA).
Of course, if you are over age 59-1/2, you could withdraw
whatever you want, pay the tax, and then loan the money.
With the understanding that it CANNOT be redeposited back in
the account, unless done within 60 days of the withdrawal.
In making such a loan you are jeopardizing your retirement
plan, unless you structure the transaction as a valid
mortgage. Interest needs to be charged and you will pay tax
on that. Loaning significant money to a friend or family
member is usually a bad idea - unless you are willing to
lose it all (then it becomes a gift). There is a reason that
banks charge the interest rates and fees that they do!!
Final point - you and your spouse DO NOT have a JOINT
account. There is no OUR in IRA. Either you each have an
account or the IRA belongs to one or the other of you. There
is an "I" in IRA, it stands for INDIVIDUAL.
Back to the drawing board.
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Ira Smilovitz on November 12, 2007, 12:11 am
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> My wife and I are thinking of loaning a portion of our
> SEP/IRA to a family member so he and his wife can buy a
> house. The money we provide would, of course, be pre-tax
> dollars. When would we be taxed -- upon withdrawal of the
> entire amount from our SEP or as we receive monthly mortgage
> payments? Thanks for any advice!
Possibly immediately, and on the total value of your IRA's,
not just the income. If the family member is a lineal
ancestor or descendent, the transaction is a prohibited
transaction and terminates your IRA.
If the family member is not a lineal ancestor or descendent,
then income would be taxable when distributed from the IRA.
The loan payments would be payable to the IRA, not to you
personally.
As a separate note, you may have trouble finding an IRA
custodian who will allow this transaction.
Ira Smilovitz
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by D. Stussy on November 14, 2007, 12:19 pm
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> My wife and I are thinking of loaning a portion of our
> SEP/IRA to a family member so he and his wife can buy a
> house. The money we provide would, of course, be pre-tax
> dollars. When would we be taxed -- upon withdrawal of the
> entire amount from our SEP or as we receive monthly mortgage
> payments? Thanks for any advice!
For those pension-type plans that allow withdrawls for a
home purchase, it has to be a home owned by the taxpayer
(optionally with a spouse) that is the same taxpayer that
the plan benefits. You can't make a qualified loan for a
relative's property. Also note that the traditional plans
and IRAs VARY as to which plans allow a $10k home
acquisition withdrawl or not - not all of them do.
[This is in addtion to 3+ responses already yelling at you
for other problems....]
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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