Fronting Money For Your IRA

Can you front money for your IRA?

Here’s the scenario. Year end is fast approaching. You want to make an investment in your IRA, or do a Roth conversion of your existing IRA, or just move your IRA, but it must be done before year end. The problem is your current IRA cannot be liquidated or moved quickly enough to meet the deadline. You have outside money just hanging around so you decide to take the outside money and move it to the new IRA or Roth IRA now, so you can meet the year-end deadline. Then, when the IRA is finally liquidated, you will simply replace your outside funds. No big deal, right? After all, it is all your money.

WRONG!! This is self dealing between you (your personal assets) and your IRA. It is a prohibited transaction. The funds that went into the new IRA or Roth IRA are not IRA eligible funds. You have an excess contribution which must be properly removed or you will have a 6% penalty for each year they remain in the retirement account.

You can put outside money into an IRA, but only up to the contribution limits each year as long as you qualify to make a contribution.

We are entering the season of temptations. Lots of food, lots of parties, lots of gifts. But this is one temptation you are going to have to resist.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
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