What situations are there where you can borrow against an account of somekind that is one of your assets and pay yourself the interest, as you pay it back? I think I heard about this with a IRA, but maybe it was a 401K that allowed this?

Neo

<<What situations are there where you can borrow against an account of somekind that is one of your assets and pay yourself the interest, as you pay it back? I think I heard about this with a IRA, but maybe it was a 401K that allowed this?>>

Sorry, Neo...but you lost me on this one.

Certainly you can borrow against your assets (and pay interest to some other institution...but not yourself). And you can borrow against your 401k account...with the interest that you pay going back into your 401k account. Heck...you can even borrow from your spouse (if s/he has a separate property account and the debt is valid) and pay him/her interest. You can borrow from your corporation and pay interet to them.

But "borrowing from yourself" would kind of defeat the purpose. You would have interest expense AND interest income...all on the same tax return. At the very best case, those amounts would simply offet one another. At the worst case, the additional interest income could push your AGI over various limits that would not allow you to make various tax moves.

I'm not sure that I answered your question...but then again...I'm not quite sure what your question actually is.

TMF Taxes
Roy

And you can borrow against your 401k account...with the interest that you pay going back into your 401k account.

Thats what I wanted to know. Now can you do that with an IRA as well?

The thinking is, you borrow the money against the account, and pay it out over multiple years. So, in the end, you owe yourself a lot of money (say when you retire) even though you have been making payments all this time. This is a tax free way to get money out of a tax sheltered account.

I'm trying to find away to legally avoid taxes and retire well before I'm 65.

SirNeo:

<<<And you can borrow against your 401k account...with the interest that you pay going back into your 401k account.>>>

"Thats what I wanted to know. Now can you do that with an IRA as well?"

No. If you want the citation, you will need to wait for Roy, or one of the other truly knowledgeable posters on this board.

Sorry it is not the answer you want to hear.

Regards, JAFO

No, you are not allowed to borrow against your IRA.

You would have to wait until 59 1/2 (at least it's not 65 ;^)) to distribute without the 10% penalty.

SirNeo writes (in part):

The thinking is, you borrow the money against the account, and pay it out over multiple years. So, in the end, you owe yourself a lot of money (say when you retire) even though you have been making payments all this time. This is a tax free way to get money out of a tax sheltered account.

I reply:

I'm afraid this plan doesn't work. To answer your first question, you can't borrow money from an IRA. As for a 401(k), my understanding is that if your employment terminates while you have a debt outstanding, you are required to pay the entire balance due immediately. If you don't, the remaining balance is treated as a distribution, and if premature, is subject to the 10% excise tax as well as ordinary income tax. --Bob

What kind of investments can IRA's make? Can they make a loan to an enterprise that makes loans?