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How Can You Borrow From a Roth IRA?

Here's how to take advantage of money in your Roth IRA

By

澳洲幸运5官方开奖结果体彩网:The Investopedia Team

Updated September 18, 2024

Reviewed by Eric Estevez

Fact checked by

Vikki Velasquez

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You can't take out a loan from a Roth IRA. There is no IRS rule for an IRA loan, but you can take out funds that you have deposited with no penalty or taxation. And you can do a rollover from your Roth IRA and treat it as a loan. Just remember, you have only 60 days to pay it back by returning it–or rolling it over–into the original or another Roth IRA.

Learn more about the rules for making withdrawals from your Roth IRA as well as your other options for getting extra cash.

Key Takeaways

You cannot borrow from a Roth individual retirement account (Roth IRA) in the same way that you can borrow from a 401(k).
You can withdraw the amount of your contributions tax-free.
If money taken from a Roth IRA is replaced or rolled over into a qualified retirement account–the original one or another one–within 60 days, there is no penalty.
Early withdrawals of earnings from a Roth IRA (before age 59½) carry a 10% penalty.
Distributions for purposes such as buying a first home or certain medical expenses may qualify for no-penalty withdrawals.

How Roth IRA Withdrawals Work

Contributions to a Roth IRA are not tax deductible when you make them. However, your distributions will be tax-free as long as you’re over age 59½ when you make a 澳洲幸运5官方开奖结果体彩网:qualified distribution. The tax-free withdrawal applies to both your original contributions and the earnings.

Unlike with traditional IRAs, you don't have to take 澳洲幸运5官方开奖结果体彩网:required minimuജm distributions (RMDs) from Roth IRAs in your lifetime. If you don’t need the money, you can leave the full amount in the account to your heirs.

Borrowing from a Roth IRA

Technically, you can’t take out a loan from a Roth IRA the way you can take a loan from a 澳洲幸运5官方开奖结果体彩网:401(k) account. But you can essentially take money out and put it back in or roll it to a new IRA account with no penalty. You are free to withdraw your contributions at any time without paying penalties. However, if you want to withdraw the earnings on your contributions, you may have to pay taxes on the gains as well as a 10% penalty.

You can work within the 澳洲幸运5官方开奖结果体彩网:Internal Revenue Service (IRS) requirements and still, in effect, borrow money for a short period of time. You’ll need to work with the financial institu💙tion that handles your Roth IRA to make sure you fill out the proper forms.

Accordi♒ng to the IRS, you can make a tax-free withdrawal of some or all of the money in your Roth IRA as long as you put the money back into either the same Roth IRA, another Roth IRA you own, or a tradit𝕴ional IRA you own within 60 days.

Using Rollovers

When you move money from one type of tax-advantaged retirement account to an IRA, you are making an 澳洲幸运5官方开奖结果体彩网:IRA rollover. This strategy is often use🐓d to transfer 401(k) funds when you change jobs or want more investment choices than your 401(k) provides. But you can use it to move money from one IRA to another.

Note

There is no limit to the amount of money you can use for an IRA rollove𒊎r.

You can make either an indirect or a direct rollover. When the money is given to you to be deposited into your bank account, it’s called an 澳洲幸运5官方开奖结果体彩网:indirect rollover. You must deposit it to a new IRA within 60 days. (A 澳洲幸运5官方开奖结果体彩网:direct rollover is when a financial institution transfers the fu🌠nds directly to a new accou💖nt. This strategy would not be helpful for "borrowing" funds.)

If you can’t repay the full amount within 60 days with an indirect rollover, you have the option to repay a partial amount. However, you’ll have to pay a 10% penalty on the portionꦺ of the money that you keep if th♑at money is earnings, not original contributions.

In addition, you can only make one rollover per year. The waiting period begins when you receive your distribution—not when you pay the money back.

If you need to use more than the contributions that you’ve made to your Roth IRA and won’t have the funds to repay the money within 60 days, you can make an early withdrawal. Most early withdrawals are subject to a 澳洲幸运5官方开奖结果体彩网:10% penalty.

Or, you may be able to 澳洲幸运5官方开奖结果体彩网:take a qualified distribution and avoid paying the penalty as well as taxes on the earnings—if it’s been more than five years since you set up and contributed to your Roth IRA and if one of the following circumstances applies:

The distribution is being used to buy, build, or rebuild your first home.
You’re at least 59½ years old at the time of the distribution.
You are disabled.

Likewi🎀se, the distribution is qualified if it is made by a beneficiary or your estate after your death.

Warning

Carefully consider the consequences of taking money from a Roth IRA and not replacing it. Removing money from a tax-advantaged retirement ac🍸count will affect how much you have for retirement.

Other Options for Getting Cash

Withdrawing money from your Roth IRA isn’t the best way to get aꦑ loan, especially if you can’t repay it within the 60-day window. If you need money, you can turn to other strategies for accessing cash beyond tapping your retirement account. For example, you could:

Tap your home’s equity: If you own your home and have sufficient equity, you may be able to take out a home equity loan or home equity line of credit (HELOC). These loans can offer lower rates than other forms of financing and have longer terms than the 60-day window you have to repay money taken from a Roth IRA.
Take out a personal loan: The interest on a personal loan is generally higher than on a mortgage or car loan because it is 澳洲幸运5官方开奖结果体彩网:unsecured. But these loans also have longer terms. Calculate the difference in costs with the time period you need to find out if a personal loan or funds from your Roth IRA make more sense for your situation.

Loans from Other Retirement Accounts

You cannot take out loans from IRAs or IRA-based plans like SEPs, SARSEPs, and SIMPLE IRA plans. However, you can 澳洲幸运5官方开奖结果体彩网:take out loans from other types of retirement accounts like 401(k)s, annuity plans that satisfy the requirements of 403(a)s or 403(b)s, and certain governmental retirement savings plans.

Frequently Asked Questions (FAQs)

Are Roth IRA Withdrawals Taxed?

Qualified withdrawals from 澳洲幸运5官方开奖结果体彩网:Roth IRA accounts are not taxed. The deposits to a Roth account are made with after-tax dollars, so no tax or penalty are charged when you take out contributions. However, the earnings may be taxable if you make a withdrawal before age 59½ and if you’ve had the account for less than five years. You’ll also have to pay a 10% penalty unless you qualify for an exception, such as unreimbursed medical expenses or if you are buying your first home.

What Happens if You Don't Return Borrowed IRA Funds?

If you are unable to return all the funds to your Roth IRA within 60 days, you still can repay a partial amount. But there will be a 10% penalty on the amount of earnings that you keep. Also, you’ll have to wait one year before you can “borrow” money from your Roth IRA again. This action is called a rollover, and the waiting period starts when you get your distribution.

Do You Pay Interest on a 401(k) Loan?

When you take out money from your 401(k) as a loan, you must pay back the amount, plus interest, to yourself.

The Bottom Line

If you need money, you can use funds from your Roth IRA if you plan to repay the amount within 60 days. Otherwise, you could face a penalty. Consider consulting with a financial advisor before withdrawing funds from a tax-advantaged retirement account to make sure you are on track to reach your financial goals.

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