You can withdraw money from your IRA and close it out. Once you do this you have 60 days to put it into a nether IRA account. During those 60 days you basically have a 60 day loan of the funds from your IRA. If you don’t get it back into an individual retirement account within the 60 day period you will owe taxes and an additional 10% penalty.

This is a risky strategy. When you borrow from your IRA you are running the risk of what could be significant expense in the form of taxes and penalties. A new IRA will generally take a few days to set up so you can’t wait until day 59 to start getting the new account ready. If you want to borrow money out of your IRA in this manner make sure you know exactly how long it will take to get a new account set up and give yourself some time as a cushion just to be on the safe side.

There is not a way to borrow against your IRA. In other words you can’t use the value of your IRA as collateral for a loan. This means you also can’t enable margin on an IRA brokerage account. Margin is basically the ability to borrow against your existing investments which is not allowed in IRA accounts. While you might be able to find an individual willing to loan you money by putting your IRA up as a pledge, this type of arrangement would technically void your IRA account. Which means taxes and a 10% penalty would be due immediately.

With regards to the 60 day loan by borrowing money from your IRA, the IRS is starting to be very careful about enforcing the 60 day rule. In the past they would often let things slide if someone established the IRA on day 61. That doesn’t seem to be the case anymore. The IRS realizes that people are closing and opening IRA accounts in order to get around the no borrowing rule. They haven’t closed the loophole. You can still borrow from your IRA for 60 days. But they are being much more careful to make sure everyone follows the rules.

The IRS still seems to give some leeway if the purpose of the IRA transfer was not to create a 60 day loan. But they are starting to look more closely at the reason behind the transaction before allowing any type of grace.

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Roth IRAs allow you to take advantage of the fact that taxes were much likely be higher in the future. Particularly for someone early in their career, their significant advantage in not having to pay taxes on any increase from the investment. The increase on your initial investment could be many times greater than the initial investment itself. A Roth IRA protects all the money you may earn in the future from taxes but requires that taxes be paid on the initial amount up front.

Traditional IRAs work in the opposite manner. When you put $1000 into a traditional IRA your salary for the year is reduced by $1000 for tax purposes. This saves you money on taxes today. However when you eventually take money out of the IRA you must pay taxes on the initial amount as well as any increase.

Traditional IRAs can be very useful for people who are at the peak of their earning potential and plan to make significantly less money during retirement. Since money put into a regular IRA will reduce taxable income. It can move money from a high tax rate to one that is significantly lower in the future.

Another advantage of a traditional IRA is that it saves tax money now. Roth IRAs rely on the government to keep its word regarding future taxation. All Roth IRAs will probably function as expected in the future, the government has changed his mind before so this does carry a certain amount of risk.

Margin was created to allow you to invest more money into stocks. But it is possible to cash the money out and use it for other things. It is a somewhat risky strategy. Your brokerage may “call your margin” and asked that the money be repaid. If you are unable to pay they may sell your stocks in order to recover their loan.

Obviously if your stocks retain their value the brokerage is unlikely to call their loan. But if the value of your stocks significantly declines, the brokerage is more likely to demand payment. If the market is declining they want to get their money back before you have nothing of value to repay them with.

Still borrowing on margin is a strategy to consider — particularly if you need a short-term loan and are certain you can arrange other financing in the very near future. For example, borrowing a margin may allow you to take advantage of a profitable business opportunity on a very short timeframe. Borrowing on margin doesn’t typically require the extensive credit checks and paperwork of other types of financing. And since it is backed by stocks they can be quickly liquidated it generally carries a low interest rate.

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What gets people into trouble is when they use that consolidation as a way to increase their spending. Your goal should be to lower the amount you are spending focusing more of that money on the principle and less on the interest. If you take payments that totaled $1000 per month, and replace them with a single loan that costs $500 per month it puts you in a better financial situation. However if you use that extra $500 per month to increase your standard of living or spend money on items that may have maintenance costs, you can work yourself into a worse situation than what you started with.

The wise thing to do with the extra $500 per month is to put some into an emergency savings account and the rest toward paying off your debt. The emergency savings account will help keep you from needing to go into debt again for unexpected expenses. The extra money being paid toward the principal of your loan we’ll help you get out of debt more quickly.

Debt consolidation loans are great for people who are willing to change their behaviors that lead to the data in the first place. Debt consolidation loans are very dangerous when they allow people to continue a pattern of behavior that needs to be changed.

In the US it is easy not to take that seriously. Bankruptcy gives people an easy way out if they are unable to pay their bills. For all their problems debtors prisons did one thing right. They made people take their debt obligations seriously. I’m not against bankruptcy laws. But I am against people doing things without considering the consequences.

Obviously this wasn’t very effective if you were so far in debt to the bank will loan you money in the first place. But during the housing boom house prices were expected to continue going up. Many banks assume that they could always sell the property for at least what they have loan.. That assumption turned out to be false as many banks are finding out.

Banks are now being more careful and there are many new rules they must follow. for instance if the selling price is lower than the appraised value they must use the selling price as the value of the house for determining the loan. This means that they normally can’t loan new extra money based on equity in order to fix up the house or take out cash. Conventional mortgages will generally only loan you 80% of the lower of the selling price or appraised value.

These new rules go a long ways toward protecting the bank. If you need to cash out equity on your house this can still be done but you must wait six months after you purchase the property area once the six-month period has gone by you can refinance using the appraised value of the house instead of the selling price.

This can be a very easy way to roll high interest credit card debt into a low interest mortgage. Obviously you need to be careful not to over extend yourself. But with credit card interest rates going up in mortgage rates at the lowest point in years there may be some opportunities to switch to lower interest levels.

The IRS is very specific that you can’t use an IRA as collateral for a loan or borrow money from it.   But they do allow you to roll the money over into another account once each year.   When you do a roll over, you have 60 days from the time you take it out of one account until you put it into the next.

So basically, you can borrow money from your IRA, but only for 60 days once each year.

Just because you can, doesn’t mean it is necessarily a good idea.   Most IRAs are invested in the stock market.   If the market is down and you pull your money out, you stand a good chance of missing out on the gain as it goes back up.   Trying to time this is nearly impossible.

For most people there are many other better options that borrowing from their IRA, but you can take a 60 day loan by using the rollover option.

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The first danger is of course that you won’t be able to pay it back and will get hit with a 10% penalty from the government tax department plus you must pay tax on the amount you take out at your marginal tax rate. This type of loan isn’t really allowed and your ability to borrow money like this is just a side effect of the rules that try to give you a reasonable amount of time to transfer your IRA to another account. However the penalties are a smaller risk than the risk of not riding the market back up.

If your IRA is like most people’s it has lost a significant amount of value in the last 6 months or so. Pulling the money out now and missing the inevitable upswing means locking in those losses. If you don’t get the money reinvested before the market goes back up, you will stand to lose a lot of money. In most cases you’ll lose significantly more than the amount of taxes that would be due on the money.

If you are in debt and can’t find a way out, pulling out your IRA investments should be the absolutely last resort in this market. Make sure you have exhausted all of your other available options before considering such a move.

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One customer was in Europe on vacation and their Amex card stopped working.   They finally got ahold of American Express and discovered that their account had been canceled.   They never were given a good solid reason.

A business customer was planning on using the “pay over time” option that American Express has, to help cover a cash flow problem for a month.   (American Express normally expects people to pay the balance each month, but they sometimes offer the ability to pay over time for certain items.)   However, when they got their bill they couldn’t find the pay over time option.   It turns out American Express had just dropped that from their account (again for no good reason).

I know AmEx was also sending people letters telling them that if they paid off their balance and closed their account they would get a free $250 gift card.   It wasn’t clear, but it sounds like these may have been send to people who American Express determined   to be at risk of not paying in the future.   The idea may have been that $250 was a small price to pay to get them to move the balances to other cards so when they did stop paying American Express wouldn’t be out the money.

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Also since most IRAs are lower in value than they were a year ago, chances are you may lose money.   In the end it is better to cut expenses and look for other sources of cash and just leave your retirement accounts alone.

401k account often have a way you can borrow money from them for longer periods of time, but even then they may be a poor choice.   Once you pull the money out you may miss the growth of the market going back up.

Debt consolidation looks like a good idea at first and it does give a slight tax break to the borrower. However, this only lasts for a short time because of the high interest, which immediately negates any gain received from the consolidation. Debt consolidation may offer a slight advantage as far as short-term financial planning goes, but in the long run, it will most likely serve to take the borrower further into debt.

One of the main disadvantages of debt consolidation is that it uses an asset that the borrower possesses as a guarantee of repayment. Some of these debt consolidation plans take anywhere from 15 to 30 years to completely repay. During this time, the borrower’s home or other asset is put continually at risk. If the potential borrower just takes a minute to consider the repercussions of debt consolidation, they could realize that, if they were to lose the home or other important possession from inability to make payments, they would be in even worse shape than they were before. This process tends to turn into a horrible vicious cycle in which the borrower is continually making payments only to have those payments negated by the effect of repossession if they fail to continue regular payments.

One effective method that may be used instead of debt consolidation to put debt into a central place is through credit cards. This only works if all of the borrower’s debt is all credit card debt. But if it is, then one way to avoid using a debt consolidation company is to put all of that credit card debt on the card with the lowest interest rate.

In avoiding bringing in a third party debt consolidation company, the borrower also avoids the potential legal and financial hassle that could result from a smaller debt consolidation company going out of business. If this does happen, the borrower is at risk of having his or her case handed over to a less reputable company. Therefore, this mess just escalates as the borrower is sent from company to company.

In conclusion, debt consolidation may be beneficial in certain cases, but it can also be very risky. Anyone that is considering consolidating their payments should do careful research and fully understand the commitment they are making with borrowing from yet another lender.