Can You Borrow From Your IRA?


Quick Answer

A person cannot borrow from his IRA, but he can take a tax-free rollover loan from his IRA account. He must repay this amount to a qualified IRA account within 60 days, or he loses the chance to return the money.

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Full Answer

After 60 days, the IRS treats an IRA rollover loan as a normal taxable withdrawal and charges income tax. A participant who defaults on his rollover must pay a 10 percent penalty if he is below 59 1/2 years of age. The policyholder can only use a tax-free rollover withdrawal once in each 12-month period, which starts once he receives his money. If the account holder returns the money to a different IRA account, the one year rule still applies beginning the day he received his money.

An individual can make other penalty-free withdrawals, such as for a first-time home purchase, or to pay health insurance premiums for his family if he has been unemployed for 12 weeks. He can enroll in a regular distribution scheme, which has no penalties for "substantially equal periodic payments." Although these withdrawals do not attract penalties, some may be taxable.

A Roth IRA has an advantage over a normal IRA since it allows an individual to withdraw his contributions without paying taxes or penalties. However, the individual loses any future tax-free growth.

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