Roth IRAs for Loans and Investments

Most people have heard of a Roth IRA and are generally familiar with its uses as a tax deduction and a retirement planning vehicle, but there are some nontraditional uses for a Roth IRA that not everyone is familiar with. There are other ways you can use your Roth IRA to your benefit and to help you make money. Here are a few questions and answers that can help educate you on other uses for your Roth IRA.

Can the outstanding loan balance from a retirement plan be rolled over into an IRA and the loan payments made to the IRA instead of the other plan?
IRAs (including SEP-IRAs) do not permit loans. Therefore, repaying a loan balance from one plan by transferring the loan balance and making loan payments to an IRA is not allowed. If this transaction was attempted, the loan would be treated as a distribution at the time of the attempted rollover.

The bank refuses to give a loan from an IRA-based plan - isn’t it required to allow loans?
IRAs are the investment vehicles for IRA-based plans. As discussed in the above Q&A, IRAs do not permit loans. So banks aren’t allowed to give loans from an IRA.

Are there any restrictions on the things an IRA can be invested in?
The law does not permit IRA funds to be invested in collectibles.

If an IRA invests in collectibles, the amount invested is considered distributed in the year invested. The account owner may have to pay a 10% additional tax on early distributions.

Here are some examples of collectibles:

* Artwork,
* Rugs,
* Antiques,
* Metals - there are exceptions for certain kinds of bullion,
* Gems,
* Stamps,
* Coins - there are exceptions for certain coins minted by the U.S. Treasury,
* Alcoholic beverages, and
* Certain other tangible personal property.

Check Publication 590, Individual Retirement Arrangements (IRAs), for more information on collectibles.

Finally, IRA trustees are permitted to impose additional restrictions on investments. For example, because of administrative burdens, many IRA trustees do not permit IRA owners to invest IRA funds in real estate. IRA law does not prohibit investing in real estate but trustees are not required to offer real estate as an option.

Are the basic investment rules different for SEPs and SIMPLE IRA plans?
The basic investment vehicle for each of these plans is an IRA, and the investment restrictions apply equally to all types of IRAs.

Can losses in an IRA be deducted on a participant’s income tax return?
No - Neither IRA losses nor IRA gains are taken into account on a participant’s tax return while the IRA is on-going.

Although, the primary function of a Roth IRA is as an investment plan. You can use them as a down payment for a first time home purchase, catastrophic medical expenses and education expenses. However, you may want to discuss these options with a financial planner before taking any money out of your Roth IRA.