Author Topic: Sell notes from a Roth IRA account to a regular account  (Read 7540 times)

Joe6Luck

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Sell notes from a Roth IRA account to a regular account
« on: May 23, 2013, 01:51:19 PM »
Hi, I saw a post on a different website, which is about selling notes from a Roth IRA lending club account to a normal account. The procedure is as follows

* Open two lending club accounts (one is a Roth IRA account, and the other one is a normal account)
* Buy notes in Roth IRA account (say $25 per note)
* Sell the above notes with a much higher price (say $50) on the foliofn platform. The price is set to be so high that nobody else will buy it
* Buy those notes from one’s normal lending club account

In this way, one will lose 1% transaction fee (1% of the $50 sell price, or 2% of original $25 purchase price) but effectively move funds to a Roth IRA account. With more funds in Roth IRA, one can buy more notes and avoid paying tax going forward. In addition, it seems to me this kind of transaction leads to investment profit in the Roth IRA account (no tax) and investment loss to the normal account (which can be claimed during tax season).

This seems too good to be true (except for the 2% fee as mentioned above) and I suspect the above procedure must have missed something that will cause trouble. Can anyone take a look at this and figure out what could be wrong with it? Thanks.

Joe
« Last Edit: May 23, 2013, 02:34:18 PM by Joe6Luck »

Joe6Luck

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #1 on: May 23, 2013, 03:31:13 PM »
I am doing some research online. This seems like self-dealing that is prohibited by IRS. Does anyone have more knowledge in this aspect?

http://www.ehow.com/about_7479442_self-dealing-roth-ira.html

LonghornSF

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #2 on: May 23, 2013, 06:07:57 PM »
Great way to get audited by the IRS. That definitely qualifies as self-dealing.

yojoakak

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #3 on: May 23, 2013, 08:49:54 PM »
"Between November 24 and December 10, 1999, Moondra executed 56 wash sales in the securities of 12 different issuers between taxable and tax-sheltered accounts in which he had trading authority. These trades resulted in no change in beneficial ownership but created artificial losses of approximately $161,695 in the taxable accounts and artificial gains of approximately $161,695 in the tax-sheltered accounts. "

http://www.sec.gov/litigation/admin/34-48432.htm

Peter

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #4 on: May 24, 2013, 08:21:46 AM »
Despite the fact that this move appears to have dubious legal standing I don't understand why it would be a good move, You are going to pay short term capital gains on your taxable account, right? Seems to defeat the purpose.
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RollWave

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #5 on: May 24, 2013, 09:26:11 AM »
Despite the fact that this move appears to have dubious legal standing I don't understand why it would be a good move, You are going to pay short term capital gains on your taxable account, right? Seems to defeat the purpose.

Roth IRA contributions are capped at $5500/yr.  Self Dealing would allow you to contribute an unlimited amount.

Fred

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #6 on: May 24, 2013, 09:50:38 AM »
Despite the fact that this move appears to have dubious legal standing I don't understand why it would be a good move, You are going to pay short term capital gains on your taxable account, right? Seems to defeat the purpose.

Actually, you are claiming short term capital loss on the taxable account, which can reduce your taxable income.

Peter

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #7 on: May 24, 2013, 05:58:50 PM »
Actually, you are claiming short term capital loss on the taxable account, which can reduce your taxable income.


Hmmm. I don't see how buying a $25 note in your taxable account and then selling it at $50 to your Roth account would create a capital loss in the taxable account. It seems like a gain to me.
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Joe6Luck

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #8 on: May 24, 2013, 06:09:16 PM »
Actually, you are claiming short term capital loss on the taxable account, which can reduce your taxable income.


Hmmm. I don't see how buying a $25 note in your taxable account and then selling it at $50 to your Roth account would create a capital loss in the taxable account. It seems like a gain to me.

It is the other way. Buy $25 notes in Roth account and sell them at $50/note to a taxable account.

Peter

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #9 on: May 24, 2013, 06:11:08 PM »
Thanks for the clarification. My mistake.
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rawraw

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #10 on: May 24, 2013, 06:21:01 PM »
Could that get you around contribution limits a la Mitt Romney style?

mitgib

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #11 on: May 24, 2013, 06:32:15 PM »
Could that get you around contribution limits a la Mitt Romney style?

Looks more like it will get you a job making little rocks out of big rocks.

rawraw

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #12 on: May 24, 2013, 07:04:06 PM »
Could that get you around contribution limits a la Mitt Romney style?

Looks more like it will get you a job making little rocks out of big rocks.
A free vacation too? :)

mitgib

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #13 on: May 24, 2013, 07:09:55 PM »
Could that get you around contribution limits a la Mitt Romney style?

Looks more like it will get you a job making little rocks out of big rocks.
A free vacation too? :)

Yes, to sunny Ft. Leavenworth, all inclusive

Kowser

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Re: Sell notes from a Roth IRA account to a regular account
« Reply #14 on: May 25, 2013, 04:35:56 PM »
This is why you need friends like those in the capital building. Do this between 3 people and what do you have now? no self-dealing, no double-dealing but just a friendly rotation of "poor" investment decisions. You can do this with real estate, too, selling it at inflated prices with your Self-Directed Roth/IRA funds between 3 or 4 parties. Using cash under the table to level out differences, so everyone loses a little to the middle man, but makes a ton on the end with tax free gains down the road. Need money to make money here (lots of it).

I also like the couple who divorced at the end of December, remarried beginning of January to take the tax breaks for filing separately. Apparently the IRS didn't like them either. I mean since when is obeying the law breaking the law? (Oh yeah, getting pulled over for going the speed limit in the left lane for "obstructing traffic", another great story :-)