Borrow From IRA
One of the most common questions we are asked is:
Can I borrow money from my IRA?
The official answer is “No you can’t borrow from your IRA.” The real answer is, “Yes there is a way to borrow your IRA money, but only for a short period of time.”
With your IRA, you have the ability to move money into another IRA. The IRS rules give you a period of time to complete the transaction. During that grace period, you can effectively get a loan from your IRA without being subject to any of the early withdrawal fees.
If you don’t put the money back within the grace period you will be liable for taxes as well as an extra 10% fee for taking the money out of your retirement account. However, if you can roll the IRA over into another IRA before the end of the grace period, you can essentially get a short term loan. The grace period is 60 days with one exception. You are allowed to take $10,000 out of your IRA penalty free in order to use to buy your first home. If you take money out for this purpose and for some reason you can’t use it for you home, you have 120 days to put it back. So in this case you might be able to borrow the IRA money for 120 days–however you’d have to actually be in the process of buying your first house.
A 60 day loan isn’t very long, but it might be enough to keep you from going bankrupt. Just be very aware of the penalties if you don’t pay it back. Other retirement account have special provisions that will allow you to borrow funds against your retirement savings for longer periods of time. Also keep in mind that there are limits on how often you can move the money back and forth, so you can probably only use this method to get a loan one a year.
If you don’t have a job, it might be possible to pull the money out and pay the 10% fee at a lower cost than what you would pay on your regular salary. This isn’t the best option, but if you are under extreme duress it might be a possible option.
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