Taking a Loan from Your IRA
You would be hard pressed to find an analyst that would advise you to take funds out of your retirement savings account. Obviously, this account is purely and strictly meant for your retirement. Of course, many things can happen in your life that may force you to do the unthinkable and withdraw from your savings. Whether it’s a freak accident to you or a family member or you need a few more bucks for a down payment, you may want to take cash out of your IRA in order to help your financial burden. While this can be a complimented process, it’s technically not impossible to withdraw from your IRA, if you’re willing to follow some pretty rigid rules.
Basically, you’re usually not able to take cash from an IRA, because the income deposited in the IRA was never taxed.
This means that the funds in the account never incurred taxes and must be dinged eventually. This charge almost always happens after the account is drawn from, and the rules state that you are permitted to borrow from other retirement accounts — 401k and 403(b), for example — but not from an IRA.
A way around this, however, is to withdraw from the IRA and either put the money back into the account in 60 days or, at the very least, deposit in into a different IRA. If you don’t pay the money back during the grace period, not only will you be taxed the money you took out, you’ll be dinged a penalty charge on the IRA.
Four instances exists in which you can remove funds from your account before you turn 59 and a half — when you’re able to take penalty-free money out of the account. These are:
– if you are going to incur medical costs that are greater than 7.5 percent of your gross income adjusted.
– are or become disabled, or are the benefactor of an IRA owner who passes away.
– in the event you are purchasing or building your first home.
– if the IRS forces your hand in the way of a levy.
The 60-day limit can only be used once annually, which doesn’t mean once a calendar year, as it counts for a 365 day period.
