How to Borrow From an IRA
- 1). Know the difference between a borrow rollover of an IRA or a permanent withdrawal (in the case of a Roth IRA) and a short-term withdrawal. Typically a borrow rollover is used to switch money from an employer managed retirement account to an IRA when you change jobs or have reason to take control of the savings. Once the rollover is complete, you must leave the money in the IRA subject to the usual rules. In the case of a Roth IRA (but not a traditional IRA) you can make a permanent withdrawal after 5 years, making this type of IRA suitable for saving for a home, college expenses, or other project as well as for retirement. A short-term cash withdrawal is allowed but must be replaced.
- 2). Understand the rules governing withdrawals when you borrow from an IRA. You can take money out of your IRA for 60 days. However, if you do not replace the money within the 60 day period, you will have to pay taxes plus a 10 percent penalty if you are under 59 1/2 years of age. Note that this does not apply to transfers of funds from one IRA to another. If the money is being withdrawn to help with a first-time home purchase, the time period is extended to 120 days.
- 3). Withdraw the money you need from your IRA. This is extremely simple. There are no forms to fill out or other paperwork. Simply go to your bank or broker and withdraw your money.
- 4). Replace the money you withdrew within the 60 or 120 day period. If you miss the deadline it will cost you a lot of money. The Internal Revenue Service is not receptive to requests for waivers of the 60/120 day rule.
