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I'm trying to borrow against my IRA but for personal reasons rather than one of the 8-9 approved reasons. Does anyone know why it's prohibited? Is there any way around this?

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  • For what it's worth. it is a bad idea to do this in all but the most dire situations. And you CAN withdraw the money any time you want to. You just pay a heavy cost in taxes and fees.
    – JohnFx
    Dec 14, 2020 at 16:27
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    Actually, you can effectively "borrow" from an IRA for less than 60 days by doing a "rollover" -- i.e. withdraw any amount of money from an IRA and re-deposit the same amount of money back into the same type of IRA (could be the same or different account) as a rollover contribution within 60 days, and it won't be considered a withdrawal or contribution. You can do this at most once every 12 months.
    – user102008
    Dec 15, 2020 at 3:28
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    Are you trying to borrow against an IRA, ie using the Ira as collateral? Or borrow from your Ira? Why not just borrow money using any number of other borrowing options?
    – quid
    Dec 15, 2020 at 19:24

4 Answers 4

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If you start a business or you may have one already and you have no employees, you can roll your IRA funds over to a Solo 401(k). You and your wife can contribute. You can take a loan against your Solo 401k, up to 50% of the balance. It gives you other advantages too. As you search you will find many providers that want to be the caretaker of your account. Shop around because they have different limitations on the type of investments you can do with a specific provider. Remember, half of your money is always in there even if you take the maximum available loan. Please note, this is not the same as a self-directed IRA. Solo 401k can be your solution and you only need a side hustle with some business activity to qualify.

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  • Are you talking about this ? I hadn't heard of that one yet, thanks for the tip.
    – Jacksonkr
    Dec 14, 2020 at 16:20
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Why can't you get a loan against your IRA?

Because the law says so, that's why. Government gives you the benefit of deferring taxes, and the government takes away the ability to borrow from it.

(Congress and the President have -- in their infinite wisdom -- decided that paying for COVID-related expenses is the just about the only exception.)

Why, you ask, are IRAs treated differently from the 401(k)? Because the 401(k) is managed by your employer, so loan repayment is as guaranteed as guarantees can be.

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  • "In their infinite wisdom" I could really get used to the quality answers from RonJoin, now to come up with some more questions..
    – Jacksonkr
    Dec 14, 2020 at 16:21
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You can't take out a loan from either a traditional or Roth IRA because IRS prohibit removing funds from a retirement account without replacing them or moving them to another retirement account. Nor can they be pledged as collateral.

There are some exceptions such as:

  • Qualified first-time homebuyer distribution of up to $10,000
  • For qualified higher education expenses
  • If you become permanently disabled
  • For the birth or adoption of a child of up to $5,000
  • The CARES Act allows a qualified individual affected by the coronavirus to take a tax-favored distribution from your IRA with the option to repay it later.

The only way around this is a roll from one IRA to another enabling you to use the assets for up to 60 days. The IRS limits you to one 60-day rollover every 12 months. If you don't roll your withdrawal within 60 days, it will be treated as a distribution and taxed accordingly.

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  • The first four items you mentioned are also distributions (which OP didn't ask about).
    – RonJohn
    Dec 15, 2020 at 23:44
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The government is giving you special tax breaks to save into an IRA, so that you have money for your retirement. What they don't want is people treating it as a savings account that they can dip into at any time.

If that were the case, then many people would have spent it all on holidays and cars long before they retired, and then they would start claiming welfare because they have no money any more.

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