World Class Mergers & Acquisitions  |  For Companies $5 Million to $100 Million in Revenue

Merger & Acquisition FAQ – March 2016

Q: I need a loan. Can a loan be taken from an IRA?

A:  Loans are not permitted from IRAs or from IRA-based plans such as SEPs, SARSEPs and SIMPLE IRA plans. Loans are only possible from qualified plans that satisfy the requirements of 401(a) and from annuity plans that satisfy the requirements. Instead I would recommend getting a loan from a bank as opposed to doing this, because: (next question)

Q: What happens if a loan is taken from an IRA?

A: If the owner of an IRA borrows from the IRA, the IRA is no longer an IRA, and the value of the entire IRA is included in the owner’s income.

Q: If I have a qualifying plan and take a loan and default, then what?

A: A loan that is in default is generally treated as a taxable distribution from the plan of the entire outstanding balance of the loan (a “deemed distribution”).

It is usually always best NOT to borrow from a retirement fund. If you have employees thinking of doing so, be sure to advise them to talk to a tax professional first.

By: Basi and Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors