can you borrow from an ira account

When an unexpected expense arises or you need cash for a big purchase, it’s natural to look at all your assets. Your Individual Retirement Account (IRA) might seem like a tempting source of funds. After all, it’s your money sitting there. This leads many people to ask a very important question: can you borrow from an ira account?

The short and direct answer is no, you cannot take out a loan from your IRA. Unlike some 401(k) plans, the IRS strictly prohibits loans from IRAs. However, there are a few specific ways you can access those funds, but they come with important rules and potential pitfalls you need to know about.

What Happens When You Try to Borrow from an IRA

Since a formal loan isn’t an option, any money you take out of your IRA is generally considered a distribution. This means it’s added to your taxable income for the year, and if you’re under age 59½, you’ll likely face an additional 10% early withdrawal penalty. This combination of taxes and penalties can take a significant bite out of your withdrawal, making it a very costly way to get cash.

Alternatives to Borrowing from Your Retirement Savings

While you can’t get a loan, there are two primary strategies people use to access IRA funds temporarily without the penalty.

The first is the 60-day rollover rule. This allows you to take a distribution and avoid taxes and penalties if you redeposit the full amount into any IRA within 60 days. You can only do this once per 12-month period for all your IRAs combined, and missing the deadline has severe tax consequences.

The second option, only for first-time homebuyers, is a penalty-free withdrawal of up to $10,000 to buy, build, or rebuild a home. While the 10% penalty is waived, you will still owe ordinary income tax on the distribution.

Thinking Through the Long-Term Impact

Even if you qualify for an exception, it’s vital to consider the long-term cost. Taking money out of your IRA means pulling it out of a tax-advantaged environment where it could have grown for years or decades. This can substantially reduce your retirement nest egg and alter your financial future.

Before accessing your IRA, it’s always wise to exhaust other options and consult with a financial advisor. Protecting your retirement savings should be a top priority, as those funds are often the hardest to replace.