“Quincy: RE: A Coverdell ESA, if an individual has contributeed to a Coverdel on behalf of his child for the last 3 years, $2,000 each yerar for a total of $6,000, can he withdraw the $6000 in contributions, leaving the accumlated gains? If so are there any tax related consequences?
2nd question: can my ROTH and HSA partner to buy or option a note and share in the profits. Or can say the ROTH buy option and sell to the other IRA to derive a profit.”
Regarding the Coverdell ESA distribution, go to IRS Publication 970, entitled “Tax Benefits for Education,” which you can download for free from www.irs.gov. The description of how to calculate the taxability of distributions is on page 53. Essentially, the distribution is done on a pro rata basis. In other words, normally each distribution will contain part of your after-tax contributions and part of any gains made in the account. Unlike the Roth IRA, your basis is not distributed first. In addition to taxes, a 10% penalty would be owed for any portion of the distribution which is taxable because it exceeded the Adjusted Qualified Education Expenses (AQEE). To the extent there was sufficient AQEE, there is no tax and no penalty on the distribution.
As to your second question, partnering your Roth IRA and your HSA is the same as partnering two IRAs – they are disqualified persons to each other, so you cannot invest in any way where one benefits disproportionately. Arguably they could partner with each other on equal terms, although you will want to be cautious in how you handle the investment if you go that route. The most conservative answer is to not partner disqualified persons together at all. However, many people choose to partner accounts together, even if they are disqualified persons too each other.
I hope that helps. Thank you for the question, and have a great day!
I appreciate if you can answer my two questions below:
1- Can I use my IRA and invest in a Laundromat business as my down payment and borrow rest from SBA?
2- Can I buy a 2nd home with my SDIRA?
1) Not directly in the IRA, no. Your IRA is to be invested for your future, not for your current benefit (or to benefit any other disqualified person). Some people say that you can set up a ROBS arrangement (Rollovers for Business Startup). This works like this: a) you set up a C corporation; b) you appoint yourself the sole director and officer; c) you have the corporation adopt a 401(k) plan; d) you roll your IRA into the 401(k) plan; e) you, as trustee of the 401(k) plan, purchase all of the shares of the C corporation; and (f) you hire yourself to run the corporation. If this sounds a bit complicated to set up and a little expensive, that’s because it is. The IRS has issued some guidance on concerns it has with ROBS arrangements, so if you go down that path you will need to work with someone who is very knowledgeable about this area and can satisfactorily address the IRS’ concerns. Investing your retirement money into what is essentially a start up business certainly can be risky. I would encourage you to do some research on ROBS arrangements and do some soul searching before setting this up. Many companies offer to set up ROBS arrangements. One such firm in Houston is DRDA, Inc., www.borsaplan.com. I am not qualified to make a judgment as to the validity of the structure, so that is something you must decide for yourself. Good luck!
2) Self-directed IRAs do buy real estate all the time. However, if you are asking can you buy a second home which you intend to use periodically personally then the answer is no, for the same reason the first answer is no. You cannot either directly or indirectly gain a personal benefit from your IRA’s assets, other than in the form of a distribution from the IRA.
Good luck with your investments, and let me know if you have any further questions.
Have a great day!