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RETIREMENT
OCTOBER 1, 2020

Can I borrow money from my IRA?

Answered by
Debra Greenberg
Director, Retirement & Personal Wealth Solutions, Bank of America
Generally, you can't take out a loan from either a traditional or Roth IRA. Due to the CARES Act, in certain situations, you may be able to take a tax-favored distribution from your IRA with the option to repay it later on if you are a qualified individual affected by the coronavirus. Learn more about the CARES Act implications for retirement plans and accounts.
Below you will find some details on general IRA rules.

You can withdraw funds to roll them over into the same, or another IRA

This tactic comes closest to borrowing money from your IRA. The federal tax laws allow you to remove money from your IRA and roll the funds over into another IRA, or back to the same one. If you don't roll over the same amount that you withdrew within 60 days, the difference will be treated as a withdrawal and taxed accordingly. You can only leverage this strategy once per 12-month period, across all of your IRAs (including SEPs and SIMPLEs).

You can make withdrawals to meet specific needs

In a handful of instances, you might not owe an additional 10% federal tax when you withdraw assets from a traditional or Roth IRA before age 59½. Eligible withdrawals include money used:
  • For a qualified first-time homebuyer distribution (up to $10,000; in line with federal tax laws)
  • For qualified higher education expenses (in line with federal tax laws)
  • If you become permanently disabled (in line with federal tax laws)
  • For the birth or adoption of a child (up to $5,000; in line with federal tax laws)

You can take a lump-sum cash distribution

You're allowed to withdraw funds from an IRA anytime, but you generally can't pay the money back and you might very well owe an additional federal tax on early withdrawals, unless an exception applies. What's more, by taking a lump-sum cash distribution, you may satisfy an immediate need for cash, but you'll hurt the long-term growth potential of your retirement portfolio and may incur additional taxes.
"By taking a lump-sum cash distribution, you may satisfy an immediate need for cash, but you'll hurt the long-term growth potential of your retirement portfolio and potentially incur additional taxes."
— Debra Greenberg, Director, Retirement & Personal Wealth Solutions, Bank of America
For traditional IRAs, withdrawals made before age 59½ are subject to federal (and generally state) income tax and a 10% additional federal tax, again, unless an exception applies. If you have a Roth IRA, your after-tax contributions can be withdrawn federal (and generally state) tax-free at any time. However, for a distribution of earnings in a Roth IRA to be federal (and generally state) income tax-free, it must be a qualified distribution. A qualified distribution from a Roth IRA is one that is taken at least five tax years after the first day of the year of your first Roth IRA contribution or Roth conversion and you (i) are age 59½, or older; (ii) are disabled; (iii) qualify for a special purpose distribution such as the purchase of a first home (lifetime limit of $10,000); or (iv) are deceased. A special provision applies for converted assets. If you take a nonqualified distribution from a Roth IRA, any earnings withdrawn are subject to regular income taxes, plus a possible 10% additional federal tax if withdrawn before age 59½, unless an exception applies.
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Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
You have choices about what to do with your employer-sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over an employer-sponsored plan from your old job to your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and different types of protection from creditors and legal judgments. These are complex choices and should be considered with care. Visit our Rollover IRA page or call a Merrill rollover specialist at 888.637.3343 for more information about your choices.
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