If you ask whether you can borrow from an IRA (Individual Retirement Account), you would generally get a resounding “No.” However, there are several ways to take money out for short-term emergency purposes. This article explores some of those options.
Before we go on, we want to advise that borrowing or withdrawing money from retirement savings accounts is generally a bad idea and should be treated as a last-resort option. The reason is that your retirement savings are meant for your retirement, and messing with them could (seriously) affect your retirement future.
60-Day Rollover Provision
You can withdraw funds from your IRA and redeposit the same amount into the same or another IRA within 60 days. This effectively acts as a short-term, interest-free loan. However, this can only be done once every 12 months across all your IRAs. Failing to redeposit within 60 days results in the withdrawal being treated as a taxable distribution, and if you’re under 59½, it may also incur a 10% early withdrawal penalty.
Emergency Withdrawals under SECURE 2.0
Under the SECURE 2.0 Act, you can withdraw up to $1,000 annually from your IRA for emergency expenses without the 10% early withdrawal penalty. You have three years to repay the amount to avoid income taxes on the distribution. However, you cannot make another emergency withdrawal within that period unless the previous amount is repaid.
Penalty-Free Withdrawals for Specific Situations
Certain circumstances allow for penalty-free early withdrawals from an IRA, though income taxes may still apply:
- First-time home purchase (up to $10,000)
- Qualified education expenses
- Unreimbursed medical expenses exceeding 7.5% of your adjusted gross income
- Permanent disability
- Health insurance premiums while unemployed
- Qualified birth or adoption expenses (up to $5,000)
- Certain disaster-related expenses (up to $22,000)
Roth IRA Contributions
If you have a Roth IRA, you can withdraw your contributions (but not earnings) at any time without taxes or penalties, provided the account has been open for at least five years.
Other Options
Before tapping into your IRA, consider other emergency funding sources:
- Personal loans — as long as they do not charge exorbitant fees.
- 0% introductory APR credit cards
- Most 0% introductory APR credit cards offer interest-free periods that typically last between 12 and 21 months. The average length is about 12 to 15 months, but some of the best offers on the market. The MOST important thing to remember if you are taking this approach: remember to pay in full after the introductory period ends so that you don’t end up paying ultra-high credit card interest!
- Home equity loans or lines of credit
- Borrowing from a 401(k) plan, if available — see Need to Withdraw From Your 401(k)? Follow This Order: Hardship Withdrawal, 401(k) Loan, and Penalty Withdrawal
Final words: Withdrawing is very different from borrowing, as borrowing means that you can still get back to your retirement savings, while withdrawing would permanently deplete your retirement savings. Even when you later try to get back to it, you’ll face more hassles such as income limits and annual contribution limits that would limit your savings. So it’s important to plan out even for emergency borrowing.