Friday, August 19, 2011

Volatile Markets - What NOT To Do

Your client, prospect or you are jittery because of today's extremely volatile markets. He decides to move some of his IRA money to another investment. In order to do this, he decides to take a distribution of some of his IRA money to move to another custodian, perhaps a self-directed IRA custodian.

But with the swings in the market he gets nervous that he might miss out on the upside while he is waiting for the paperwork to be processed for the new IRA. So he uses his IRA money, while it is outside of the IRA, to purchase his new investment. He figures he can just put the investment back into the new IRA, no harm, no foul, right?


The rules say you can only deposit the same property that was withdrawn. If cash is withdrawn, then cash must be redeposited. If stocks or other property are withdrawn, then the same stocks or property are what must be redeposited in the new IRA.

Of course there is an exception to this rule. It applies to withdrawals from employer plans, such as 401(k)s. If you take a distribution of assets other than cash from an employer plan, those assets can be sold and the cash received can be deposited into an IRA or other employer plan. But that is the only exception to the same property rule.

By IRA Technical Consultant Beverly DeVeny and Jared Trexler
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