Misc IRA questions.

I got a call today from a client that is about to have his IRA buy a piece of land and lease the mineral rights. This is a hot area in some parts of the country. His first question was whether a lender would lend him funds for the purchase. I gave him the name of an IRA lender but informed him that it seemed unlikely since the lease payments on the mineral rights were not substantial unless the gas company actually chose to drill at some point and therefore the land was not income producing. Since and IRA loan is non-recourse, the lender would either have to see substantial assets in the IRA, or there would have to be an income producing property involved.

My clients next question was about when was the earliest that he could take distribution on a ROTH IRA. The answer is two fold. 1. The age of 59 ½ or before that if he is ”eligible.” Eligible (tax and penalty free) distributions of earnings must fulfill two requirements. First, the seasoning period of five years must have elapsed, and secondly a justification must exist such as retirement or disability. The simplest justification is reaching 59.5 years of age, at which point qualified withdrawals may be made in any amount on any schedule. Becoming disabled or being a "first time" home buyer can provide justification for limited qualified withdrawals. Finally, although he could take distributions from a Roth IRA under the substantially equal periodic payments (SEPP) rule without paying a 10% penalty, any interest earned in the IRA will be subject to tax at a substantial penalty.