Sequential Roth Rollovers

[tessaduncan]

DH and I purchased a home with a cash offer. Due to recent market downturn and a personal emergency expense, we need an additional $100,000. I thought I could take that from my Roth and return the funds within the 60 day window - AFTER the new year. Closing date has now been moved up to Nov. 2 and we'll likely miss that window by just a few days. We could get a HELOC but we might not make that window either so we're looking for backup options. Can we take a distribution from my DH's Roth to replace mine and essentially reset that window, then replace the funds in his Roth with a traditional IRA distribution in January? I know you can only return funds once in 365 days but that applies to the individual, right?

All of our other money (other than for the house) is in retirement accounts so we can't take any distributions from those this year or we'll have tax/IRMAA issues. We have no other house and I was told Vanguard (where we have the bulk of our investments) does not do asset-based loans. Any ideas? Thanks in advance!

[pb4uski]

Quote:

Originally Posted by tessaduncan ... Can we take a distribution from my DH's Roth to replace mine and essentially reset that window, then replace the funds in his Roth with a traditional IRA distribution in January? I know you can only return funds once in 365 days but that applies to the individual, right? ...

Yes, I would think so... it is an Individual Retirement Account.

Nov 2 + 60 days would be Jan 1. Can you push the closing to Nov 3 and then settle it all on Jan 2?

[tessaduncan]

Even if I could take it the distribution on Nov 2, 60 days would be December 31. I'll likely have to take the distribution at least a couple of days before closing in order to have time to make the bank transfer, cut the closing check, etc. And throw holidays in there, it's all too tight a timeframe. The sequential rollovers would buy breathing room if I can't get the HELOC in time.
We weren't even supposed to look for a house until January but this one was too perfect to pass up. I already had that $100,000 in a MM for just that purpose. I really didn't want to sell Roth investments (a lot of VTI) but hopefully returning it to the Roths asap will mitigate the damages

[Bigdawg]

Offer a contract for deed with the seller until you figure out where to get the cash from.

[tessaduncan]

We have a contract with closing date of Nov. 2. Seller was firm on that.

[Out-to-Lunch]

You don't happen to have a retirement PLAN (like a 401k) active do you? You could take a loan against one of those.

[levindb]

Back in 2020, We purchased our home and "borrowed" funds for the down payment from my tIRA until we could process a HELOC on our rental property. Things were running slow, and I had to pay back the borrowed funds before the HELOC closed. Since we did not want the borrowed funds to be taxable, DW "borrowed" funds from her tIRA to pay back my IRA. I presume you could do the same using ROTH IRAs.

[tessaduncan]

levindb -
that's exactly what I'm asking about! Everything I've read just says one rollover/365 days and as a married couple, we'd be making two. But they are INDIVIDUAL IRAs as pb4uski said.
Thank you all!
P.S. no 401ks

[pb4uski]

Quote:

Originally Posted by tessaduncan DH and I purchased a home with a cash offer. Due to recent market downturn and a personal emergency expense, we need an additional $100,000. I thought I could take that from my Roth and return the funds within the 60 day window - AFTER the new year. Closing date has now been moved up to Nov. 2 and we'll likely miss that window by just a few days. We could get a HELOC but we might not make that window either so we're looking for backup options. Can we take a distribution from my DH's Roth to replace mine and essentially reset that window, then replace the funds in his Roth with a traditional IRA distribution in January? I know you can only return funds once in 365 days but that applies to the individual, right? All of our other money (other than for the house) is in retirement accounts so we can't take any distributions from those this year or we'll have tax/IRMAA issues. We have no other house and I was told Vanguard (where we have the bulk of our investments) does not do asset-based loans. Any ideas? Thanks in advance!

Wait... you said that closing date has been moved up to Nov 2.. why do you have to agree to that? Tell the seller that you need to move it to Nov 9.

The seller doesn't have the right to move up the closing date unilaterally, it needs to be agreed by the parties, otherwise it is as stated in the purchase and sale agreement. Check with you lawyer or agent.

[tessaduncan]

Quote:

Originally Posted by pb4uski Wait... you said that closing date has been moved up to Nov 2.. why do you have to agree to that? Tell the seller that you need to move it to Nov 9. The seller doesn't have the right to move up the closing date unilaterally, it needs to be agreed by the parties, otherwise it is as stated in the purchase and sale agreement. Check with you lawyer or agent.

Sorry I didn’t make it clear- the closing date was part of the bidding process. They had another offer that was higher but a mortgage. The sellers accepted ours since it was cash and closing could be sooner. I thought we could squeak by until i actually counted the days. Not only is the house just what we were looking for and at a good price, but it’s across the street from our son and his family. Being a part of our grandkids’ daily lives is priceless!

[pb4uski]

So the closing date is defined as Nov 2 in the purchase and sale agreement?

If so, if you and your DH each have over $100k in your IRA you can do a withdrawal from one just before Nov 2, then do a withdrawal from the other 50 days later and do a rollover contribution to offset the first withdrawal, then in early 2024 do a withdrawal and then do a rollover controbution to offset the second withdrawal.

The once a year limit is on rollover contibutions, not on withdrawals.

I think that would work. as always, YMMV.

[SecondCor521]

Rollovers are on a per taxpayer basis, not a per tax return basis. So a MFJ couple can do the "handoff" approach that the OP contemplates. See https://www.irs.gov/retirement-plans...0rolled%20over and following.

Note that the "once per year" is actually once in any rolling 12 month period. So if spouse 1 makes the $100K withdrawal on October 31st and spouse 2 makes the $100K withdrawal on December 20th, then spouse 1 would not be able to do another 60-day rollover before November 1, 2024. Similarly spouse 2 would not be able to do another 60-day rollover before December 21, 2024.

OP is wise to consider that there needs to be some extra time allowed for the transactions to take place and the money to be moved around. Snafus happen. It would make me nervous to get anywhere close to the 60th day; I'd personally look for other options before using this approach (rent with a promise to buy? bridge loan? ask the realtor or mortgage officer for more ideas?).

ETA: I see on re-read that OP is trying to get a HELOC. It's probably obvious, but they could do the first 60-day rollover and probably get the HELOC in place and then use the HELOC to pay back the first 60-day rollover, not even needing to do a second rollover.

[tessaduncan]

"ETA: I see on re-read that OP is trying to get a HELOC. It's probably obvious, but they could do the first 60-day rollover and probably get the HELOC in place and then use the HELOC to pay back the first 60-day rollover, not even needing to do a second rollover."

Yes, that's the plan. DH's Roth would be our backup should getting the HELOC take more time than expected.

[48Fire]

We were burned by this when the second IRA (my wife's) was an inherited IRA. Apparently that's a no-no. We only needed the second IRA when the buyers defaulted on the closing date. They claimed they were a cash buyer, but they couldn't get mommie to release their Trust Fund money

[orbops]

My wife and I had a somewhat similar situations for both an asset based loan and using money from a tIRA in a 60 day window.

In terms of an asset based loan, we found a local lender that would do an asset based loan to cover 80% of the mortgage and we used our cash from my inherited Roth to make a 20% down payment to avoid PMI. The agreement on the bank taking on an asset based loan was that we had to keep our mortgage open for 6 months, so that the interest payments would cover all their costs. Once our previous home closed, we could pay down the balance on the mortgage, which happened about a month later.

In terms of the 60 day window (of a different home sale transaction), I transferred money out of a Vanguard tIRA. We thought the home we were selling would easy close within the 60 days, and it turned out that it was coming down to the wire since the buyer demanded some price relief after the inspection. My wife and I were worried that we wouldn't meet the 60 day window, and ultimately had to sell some stocks to cover about $179K of cash needed to close the home purchase. In hindsight, we didn't need to sell the stocks because we ended up closing around the 58th day - but it was extremely nerve wracking!

One caution in dealing with Vanguard on distributions - Vanguard has a 9:30AM Pacific Time restriction on same day wires. Additionally, they wouldn't let me set up a next day wire transfer, and I had to also get "permission" from one of their managers to allow a same day wire transfer - even though it's my IRA money. It took over 1.5 hours to complete the transaction, of which 1 hour was spent on hold.

One caution if you end up having to sell stocks/mutual funds to make up the $100K difference - make sure to know exactly when the settlement dates are. I messed up on one sale's settlement date, and Fidelity also had a time restriction on wiring same day money, while TD Ameritrade was more flexible. If TD Ameritrade had similar restrictions, it may have torpedoed the purchase of our home because we would have been short on closing day.

[ERD50]

Maybe it's irrelevant (and maybe not), but I'm confused.

If you are pulling from IRA for money you need at closing, where were the funds coming from that you would use to return to the IRA?

I guess the options have been covered, but consider anything else you could do a short term loan from if that's what you need. A margin loan against a taxable account (that's what we did to bridge between a cash closing and getting a sweet 3% 30 year mortgage)?

-ERD50

[tessaduncan]

Quote:

Originally Posted by ERD50 Maybe it's irrelevant (and maybe not), but I'm confused. If you are pulling from IRA for money you need at closing, where were the funds coming from that you would use to return to the IRA? I guess the options have been covered, but consider anything else you could do a short term loan from if that's what you need. A margin loan against a taxable account (that's what we did to bridge between a cash closing and getting a sweet 3% 30 year mortgage)? -ERD50

The $100,000 is in a money market in a tIRA which we had already earmarked for a home purchase and factored into next year's tax plan. We don't want to take any more taxable distributions this year for tax and IRMAA reasons. In January, we'll take the tIRA distribution and return funds to the Roth as we want to keep our Roths intact. So we have the cash, just need to delay withdrawing it a bit. Hopefully a HELOC will work out but just wanted to make sure my backup plan is allowed. It would buy us a lot of breathing room