There are various reasons that you may be asking yourself can I borrow from my IRA account? You may have fallen on hard times, and need to access the funds in your IRA. You could also be in need of short term capital for an investment that can quickly be refinanced at a later date using traditional methods.
While your 401k account will allow you to borrow against it, there are fees and penalties associated with early withdrawals from a traditional IRA. A Roth IRA, however, allows for tax and penalty-free withdrawals of original contributions at any time, and tax-free distributions on earning after certain conditions have been met.
As there are specific rules pertaining to different individual retirement accounts, and you should consult with your financial adviser, or the retirement specialists at online broker ETrade, to find out the specifics concerning your unique financial situation.
For most IRAs, if you have no alternative option, there is a loophole you can use to access your funds for a limited time. There are specific circumstances where this strategy is advised, and if your situation does not fit within these parameters this strategy is probably not right for you.
Can I Borrow From My IRA Account: Sort Of
The rules concerning borrowing from your IRA strictly forbid it, and there are steep taxes and fees for early withdrawals. Not only will you be taxed on the entire amount withdrawn or used as collateral, there will also be a 10% early withdrawal fee.
While in a handful of circumstances you may be able to avoid the 10% penalty, taxes alone can eat away at your capital, and greatly reduce the amount of money available.
You are allowed to rollover your IRA from one account to another. This is typically done by requesting a check from from your old account and depositing it into the new account. You have to accomplish this within 60 days, so you technically have tax and penalty free access to your money for that 60 day time frame.
Can I borrow from my IRA account? This rule is not in place to allow you to take a loan, it is only there to permit you time to transfer funds. For the majority of people, utilizing this option is a terrible idea. As the law is clear that you only have 60 days – keep in mind that 60 days does not mean two months – and that 60 days is a short amount of time to clear up a financial problem so severe you need to raid your retirement funds to solve it.
If the money is not repaid to the account within the 60 day time frame, the amount of the withdrawal will be subject to income taxes and fees that could possibly add up to thousands of dollars. If you file for bankruptcy, all debts can be charged-off except money owed to the IRS, meaning if you borrow the money from your IRA and then file for bankruptcy, you will have a tax debt that will stay with you no matter what.
Can I Borrow From My IRA Account?: When To Consider It
You may be wondering when it is OK to use this loophole to borrow funds from your IRA. The only real way to utilize this strategy effectively is to use the funds to finance opportunities that involve quick access to cash where you can later obtain an alternate form of financing.
The best example of this would be a real estate deal such as a short-sale or foreclosure, where you want to make a quick cash offer to the bank. Potentially, you could withdrawal the money from your IRA to purchase the property, and then obtain a mortgage on the property in order to repay the funds.
This strategy still involves risk and you need to be certain that you can obtain alternate financing in the time frame allotted, there are no other obstacles you may have overlooked, and there is not other possible sources for the funds. You must also plan for the time it will take to either redeposit the funds into your account or set up an all new account, as these are included in the 60 day time frame.
There are many factors to consider that will be specific to your situation if you are asking yourself, can I borrow from my IRA account? When you use ETrade as your IRA broker, you have access to the industry’s top financial professionals who can advise you on your best course of action for your circumstances.
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