Is Borrowing Permitted on My IRA?

by Emily Weller

Some 401k accounts allow you take to lend yourself money from the account, as long as you pay it back with interest. The same does not hold true for IRAs. While you cannot technically borrow money from your IRA, there are ways to take out short-term distributions before you are of retirement age, without paying a penalty -- but you must replace the funds within 60 days.

60 Day Limit

Although not technically a loan, there is a way to withdraw money from your IRA without penalty and repay it. The money needs to be returned to an IRA within 60 days. It can be the same IRA, a different, already established IRA or a newly opened account. Since it is not a loan, you will not have to pay interest on the amount you withdraw. If you don't re-invest the money in the same IRA or a new one within the time limit, you will owe a 10 percent penalty tax if you are under age 59 1/2.

12-Month Limit

You are only allowed to withdraw money and return it once a year from each IRA you have. If you place the money from one IRA into another IRA within 60 days, you cannot withdraw money from the second IRA during the year. You can withdraw money from a third or fourth IRA and return in within 60 days without penalty within the same 12-month period, though. The one year limit begins on the day you withdraw the money, not the day you return it. For example, if you pull money out of your first IRA on Jan. 4, you cannot take money out until Jan. 4 of the next year.

Benefits and Risks

Withdrawing money from your IRA for 60 days can help ease short-term cash flow problems you may be experiencing. A risk of withdrawing the money and using it to pay bills or expenses is that you may not be able return it within the time frame, incurring penalties and taxes. If you return only a portion of the amount you withdrew to the same or a new IRA, you will still have to pay penalties.

Other Options

In some cases, you can take money out of an IRA without paying an early withdrawal penalty. You'll still owe income tax on the distributions from a traditional IRA, though. If you have medical expenses that are more than 7.5 percent of your adjusted gross income, you can use money from an IRA without penalty to pay them. Other instances where you can take early withdrawals from an IRA without the 10 percent penalty include buying your first home, paying for education and paying an IRS levy.

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