Monday, February 05, 2007

How to borrow money from IRA

"Wait a minute! You can't borrow money from your IRA!" I read an article somewhere that said you can as long as you are able to pay it all back within 60 days. Let's say you are below the age 59 1/2 and you need the money for whatever purposes that doesn't fit the exception rule. There is no loan interest and there is no withholding period when you borrow money from your IRA. So, if you need money right away, you can borrow money from your IRA. How? It's called a IRA rollover.

The IRA rollover can only be done once every 12 months. You withdraw money from your current IRA and you have 60 days to deposit this money into an IRA account. Keep in mind, you don't necessarily have to open a new IRA account to do the rollover. You can put it back into your original IRA. During the 60 day period, you can use the money for whatever purpose, as long as you pay it all back by the 60th day. If you do not pay it back, you will pay income taxes on the earnings and also pay a 10% penalty as well. So, its a double taxation.

You have to be careful with the 60 day rule. The IRS does not accept any excuses or give any extensions if you can't pay the money back. If the 60th day lands on a weekend or on a holiday, it is your obligation to deposit the money before hand. Let's say you get your check from your IRA on April 1. You must deposit the money on or before May 30 (April 1 is the first day of the 60 days. There are 30 days in April and 31 days in May). If May 30 is on a Saturday or Sunday, you know the stock market doesn't do any trading on the weekends. So, you must deposit the money on the Friday before May 30.