IRAs and Miles/Points?
Sep 18, 2000 | 5:50 pm
#4
Join Date: Jan 2000
Location: Annapolis, MD
Posts: 483
And what regulations would those be? I have heard many people say their are regulations, but I haven't been able to find any with a search of the Federal Code and no one has been able to point it out to me. Anyone know the actual regulation that prohibits this?
Sep 19, 2000 | 4:15 pm
#5
FlyerTalk Evangelist
Join Date: Feb 2000
Location: Winter Garden, FL
Programs: Delta DM-3MM United Gold-MM Marriott Lifetime Titanium Hertz President's Circle
Posts: 13,498
I'm trying to get a specific cite, but for now, here's what I remember:
A rule came out very early (1980 or so) saying no toasters for IRAs. I believe the rationale was one (or more) of the following:
1. Premature Distribution: The toaster (if it has value to the contract owner) would be a distribution and taxed as income and, if the IRA owner is under age 59, subject to an additional 10-percent excise tax.
2. Benefits are only supposed to be for retirement (or death or disability, if they occur first).
3. No alienation, borrowing, or using an IRA as security: Getting money (or something valuable) out is even worse, since you get the value of the gift and don't have to repay it.
4. Exclusive Benefit rule: Other people might get the toaster.
IRC section 408(e)(2)(A) says, in effect, if an individual engages in a prohibited transaction under section 4975, then the IRA self-destructs. Section 4975(c)(1) defines prohibited transactions as any direct or indirect -
(A) sale or exchange of property between a plan and a disqualified person,...
(C) Furnishing goods and services between a plan and a disqualified person.
These rules were meant to keep fiduciaries who invest pension plan assets from self-dealing, but I guess it applies to the IRA contract-holder, too, per 408(e)(2)(A).
Maybe I'll find a better cite in regs. If so, I'll post it.
Bruce
A rule came out very early (1980 or so) saying no toasters for IRAs. I believe the rationale was one (or more) of the following:
1. Premature Distribution: The toaster (if it has value to the contract owner) would be a distribution and taxed as income and, if the IRA owner is under age 59, subject to an additional 10-percent excise tax.
2. Benefits are only supposed to be for retirement (or death or disability, if they occur first).
3. No alienation, borrowing, or using an IRA as security: Getting money (or something valuable) out is even worse, since you get the value of the gift and don't have to repay it.
4. Exclusive Benefit rule: Other people might get the toaster.
IRC section 408(e)(2)(A) says, in effect, if an individual engages in a prohibited transaction under section 4975, then the IRA self-destructs. Section 4975(c)(1) defines prohibited transactions as any direct or indirect -
(A) sale or exchange of property between a plan and a disqualified person,...
(C) Furnishing goods and services between a plan and a disqualified person.
These rules were meant to keep fiduciaries who invest pension plan assets from self-dealing, but I guess it applies to the IRA contract-holder, too, per 408(e)(2)(A).
Maybe I'll find a better cite in regs. If so, I'll post it.
Bruce