Some IRA owners may be at risk of having their entire account taxed as a result of a cross-collateralization agreement they signed with their brokers. These agreements extend credit between the owner’s personal assets and IRA assets. To help provide some reprieve for IRA owners who signed these agreements, the IRS has offered a tax-deferred growth, but it is uncertain whether this relief will be permanent. The owner must not engage in prohibited transactions if he intends to enjoy the tax-deferred growth. For example, the owner cannot lend money or credit between an IRA and a disqualified individual as IRAs are prohibited from receiving credit from or extending credit to a disqualified person, including the owner himself.
For more information on the tax-deferred growth, see Ed Slott, Skirting an IRA Pitfall, Financial Planning, Mar. 1, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.
