Your IRA is Not a Piggy Bank


Most of us treat our IRA accounts consistent with their formal name - as “Individual Retirement Accounts”. Since one’s IRA is an “individual” account, there is a tendency is to consider it as

an alter ego to the personal economic life of the owner. A recent Department of Labor Advisory Opinion, however, is a reminder about the significant restrictions placed on IRA accounts that can result in punitive tax consequences being imposed on transactions that would be perfectly acceptable if carried out personally.

In DOL Advisory Opinion 2011-04A, the IRA owner, Mr. Warfield, proposed that a mortgage held against an apartment building that he owned be refinanced through his IRA. This was to be done by using IRA assets to pay off the third party bank that held the current mortgage and having the IRA then be the continuing mortgage holder. In this way, Mr. Warfield hoped to use his IRA account balance to stabilize his financial situation without being forced into taking a taxable distribution from the IRA and then using the after-tax net proceeds to pay off the mortgage.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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