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Can I Borrow From My IRA?

Here’s a question that comes up a lot…can I borrow from my IRA.  The short answer is…no.  Unlike a 401k,  there is no loan provision on IRA.  But a 60-day rollover may be an option if you need some funds for a short time.  Let’s take a look.

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When you get a payment from your IRA or retirement plan, you have 60-days to roll it over into another IRA or retirement plan.  Doing that avoids taxes and keeps your money growing tax- deferred.  

There are three options for completing a rollover.  The first is a direct rollover.  You have your 401k make a check payable to your new account…either your new employer’s plan or your IRA.  This is a non-taxable transaction…there’s no withholding of taxes…and the money ends up in your IRA or retirement plan.  The key is the check is payable to the next account custodian, not to you.

Another rollover option is the trustee to trustee transfer.  In this one, you’re taking a distribution from your IRA and having the current custodian make the check payable to another IRA or your workplace retirement plan.  No tax withholding, not taxable.  Check is not made out to you.

The third option is the 60-day rollover.  In this one, the check from an IRA or retirement plan is made out to you.  If it’s from a 401k, the plan is required to withhold 20% for taxes.  You’ll have 60-days from receipt of the check to get it into another IRA or retirement plan.  

Any amount you don’t rollover within the 60-days will be subject to tax and if you’re younger than 59.5, an additional 10% penalty.  Remember the 20% withholding on the retirement plan distribution.  You’ll have to come up with that out of pocket to make it a full rollover of the distribution.

What you do with the money during those 60-days…well, that’s up to you.  Some folks treat the 60-day rollover as a very short term loan.  Just remember, you’re only allowed one 60-day rollover every 12-months.

Rollovers can be tricky.  Especially the 60-day variety.  Make sure you understand the tax implications before you start one.  And it never hurts to consult with a professional.