Loans from IRAs are not possible, the IRS reports. Retirement plans eligible for loans include 401(a) plans, 403(a), 403(b) or certain plans from governmental sources. The only way to borrow from an IRA is to remove funds from the plan and accept the tax penalties.Continue Reading
Many popular retirement plans allow for borrowing, including some 401(k) plans. Removing money from an IRA early may result in substantial tax penalties. Early IRA distributions are considered taxable income and may be subjected to an additional tax if the owner is under age 59 1/2. This additional tax is not a deductible penalty. When removing money from the account, specific amounts must be withdrawn based on a percentage of the total. Some accounts have reduced tax obligations, such as Roth IRAs.
To withdraw early funds, contact the financial institution operating the plan. Early distributions may require filing form 5929 along with form 1040 with the IRS. The distribution amount is taxed at the normal tax bracket rate along with other taxable income. At age 70 1/2, withdrawals each year are required. Withdrawals after age 59 1/2 are usually included in taxable income but are not subject to penalties for withdrawal, according to the IRS.Learn more about Financial Planning