Q:

60-Day "Borrowing" From an IRA

In brief, I am projecting out a budget for a personal construction project I am having done, and the numbers are very tight.   I have some buffer built in, but if I exceed the buffer amount and my cash flow is restricted (e.g. my clients pay late, etc.),  I will need some sort of short term bridge loan.   This is about six month down the road, but I am trying to understand my options before wading in. 
From Publication 590 it sounds like I can withdraw money ostensibly for the purpose of rolling the money into a new account, but can return the money within 60 days with no penalty.   Am I understanding this correctly? 
Note that I would not consider this unless I feel 100% confident that I could pay the money back within the 60 days. 
Given all of this, am I understanding the rollover rules correctly?   Any other pitfalls I would need to be concerned about? 

A:

You read it right.  Todd's warning is well taken. 
I don't know the numbers involved, but have a brilliant suggestion that may help.  A Solo 401(k) is simple to qualify for.  Any bit of declared side income will do.  Once the account is set up, a transfer from IRAs is simple.  The Solo 401(k) can offer a loan provision as any other 401(k), and you can borrow up to 50% (max of $50K) for any reason with a 5 year payback.  The standard rate is Prime+1%, the fee is minimal usually $50-$100.  
All the warnings of IRA 'loans' apply, but the risk of job loss (the largest objection to 401 loans) isn't there.  The fact that you have 6 months to set this up is part of what prompts this suggestion.  
Note: Any strategies like this aren't for everyone.  There are folk who need to access quick cash, and this solves the issue in two ways, both low rate and simple access.  Phil already stated he is confident to return the money, the only thing that prompted my answer is there's real risk the 60 days a bit too short for any business deal.  

A:

The Tax Court ruling Todd mentioned was that you can only do one roll-over in a 12-months period.  I.e.: if you have already done a roll over (even if it is between different accounts) - you cannot do it again between any of your IRA accounts for 12 months. 
So for the "60-days loan" trick to work you must ensure that:

You haven't done a roll-over within the last 12 months; and
You're not going to do a roll-over within the next 12 months. 

Note, that the Tax Court took into the consideration that the IRS pub.  590 was explicitly saying that you can do multiple roll-overs as long as different accounts are involved.  The Court ruled, that the IRS instructions are NOT a legal authority.  I.e.: the IRS can write in the instructions whatever they want, but if it contradicts the law (as it did in this case) - the law always prevails. 
This is only for indirect rollovers (where you actually get the money and then re-deposit it within 60 days), trustee to trustee rollovers are not limited. 
This limitation is codified in 26 U.S. Code § 408(d)3(B).