How Much Money Can Be Borrowed From a Roth IRA?

by Melinda Hill Mendoza

If you're running short on cash, one of the places you may look to is your Roth IRA. A Roth IRA is a retirement account that you can fund annually, up to a maximum set by the IRS. Roth IRAs are made with after-tax funds, meaning you don't deduct the contributions on your income taxes the year you make the contribution. Once you deposit the funds, they grow tax-deferred, and there are no further taxes due on qualified withdrawals. You can't exactly borrow money from a Roth IRA, but you can withdraw it on a short- or long-term basis.

Allowable Distributions

Generally, you must be age 59 1/2 and have had your Roth for at least five years in order to qualify for a tax-free distribution. As of 2011, the IRS allows certain early withdrawals tax and penalty free. You may withdraw up to $10,000 for a first home. You may also be eligible for a tax-free and penalty-free withdrawal if you owe a significant amount of medical expenses, are paying health insurance premiums due to a job loss, are using the funds for qualified higher education expenses (books, room and board, tuition) or if it's part of an IRS levy. You also can receive an early distribution with no penalty if you're a military reservist, and you withdraw the funds while you're on active duty.

Early Withdrawal

If you're not eligible for a qualified distribution, you can still withdraw funds from your Roth IRA, and you can do so at any time. As long as you don't withdraw any of the interest the account has earned, there is no early withdrawal penalty, and it will not be taxed. If you withdraw any of the earnings, those earnings are considered taxable income. If you withdraw earnings and are younger than 59 1/2, or the plan has not been open for five years, earnings will be subject to a 10 percent early withdrawal penalty in addition to the taxes due.

Rollover Distribution

Technically, you can't borrow money from a Roth IRA. If you need the money for less than 60 days, though, you can take a rollover distribution from your IRA. When you rollover an IRA, you have 60 days from when the funds are distributed to complete the transaction . The custodian will withhold 10 percent of your IRA for federal taxes unless you specify otherwise. You can use the funds however you need to, but you must have the funds back in the same type of IRA you took the distribution from by day 60, or it will be considered a withdrawal. There's no monetary limit on how much you can "roll over," but you are limited to one every 12 months.


The 12 month limitation applies to all your IRA accounts. So, if you have more than one, you still cannot do more than one rollover per year. While this "borrowing" strategy may be better in the long run than taking a withdrawal -- which you cannot return -- consider, first, why your are taking the money. If you don't have access to that amount of cash now, what are the chances you will have it in 60 days? If you can't replace the money, you not only face expensive tax consequences, but you'll suffer a major hole in your retirement savings. In addition you will lose the tax-free income that money would have earned had it remained in the account.

About the Author

Melinda Hill Mendoza has been writing professionally for over 10 years. She worked as an editorial assistant for Forward Movement Publications in Cincinnati, Ohio. She wrote for several years for and edited and wrote a chapter for a book with Wooster Press. She graduated from Miami University in Ohio with a Bachelor of Arts in English.

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