QUESTION/BACKGROUND: I took a cash distribution from my Vanguard IRA and then purchased a rental house in San Diego, CA, which I would now like to deposit as a rollover to a self-directed 401k. Note that it has been less than 60 days since I received the IRA distribution check from Vanguard and purchased the rental house. If I open a self-directed 401k with your firm, can you help me process the rental house as a non-taxable rollover the self-directed 401k?
ANSWER: Unfortunately, when a cash distribution is processed from an IRA, whether a Traditional, SEP or SIMPLE IRA, the IRA rollover rules require that in turn cash proceeds are deposited to another IRA or qualified plan including a self-directed 401k (a type of 401k for the self employed) within 60 days in order to qualify as non-taxable movement of funds. As such, you will not be able to deposit the rental house that you purchased with IRA funds to a self-directed 401k. Instead, you will need to come up with the liquid funds and deposit them into the self-directed 401k, the same IRA that they originated from or another IRA before the 60 day window expires in order a to avoid subjecting the distribution to payment of taxes and possible early distribution penalties.
On a separate note, while confusing, the IRA rollover rules permit the rollover of cash proceeds stemming from an asset like a rental house that was distributed from an IRA to a self-directed 401k provided, of course, the 60 day window has not expired.
Susan in CA