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RETIREMENT
JUNE 1, 2018

Can I Borrow Money from My IRA?

Answered by
Debra Greenberg
Director, Personal Retirement Solutions Group
Strictly speaking, you can't take out a loan from either a traditional or Roth IRA. There are many rules surrounding withdrawals from IRAs, and while borrowing isn't allowed, there are a few circumstances in which the tax laws permit withdrawals from your IRA.

You can withdraw funds to roll them over into another IRA

This tactic comes closest to borrowing money from your IRA. The tax laws allow you to remove money from your IRA in order to roll it over into a new IRA — but it gives you 60 days to do so before the amount will be treated as a taxable distribution. If you don't roll the same amount that you withdrew into a new IRA, the money will be treated as a withdrawal and taxed accordingly. You can only leverage this strategy once per 12-month period, across all of your IRA accounts (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:
  • to cover a first-time home purchase
  • for qualified higher education expenses
  • if you become permanently disabled
In such cases, you may not owe the additional 10% federal tax on early withdrawals.

You can take a lump-sum cash distribution

You're allowed to withdraw funds from an IRA anytime, but you 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," says Debra Greenberg, a director in the Personal Retirement Solutions Group at Bank of America Merrill Lynch.
"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, a director in the Personal Retirement Solutions Group at Bank of America Merrill Lynch
For traditional IRAs, withdrawals made before age 59½ are subject to income tax and a 10% additional federal tax, again, unless an exception applies. If you have a Roth IRA, your contributions can be withdrawn tax-free at any time. However, if either (i) less than five years have passed since the first day of the year you made your first Roth contribution or Roth conversion, and (ii) you have not yet reached the age of 59½, early withdrawals of earnings may be subject to an additional 10% federal tax, unless an exception applies.
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Neither Merrill Lynch nor any of its affiliates or financial advisors 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 account 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 http://www.merrilledge.com/retirement/rollover-ira or call a Merrill Edge® rollover specialist at 888.637.3343 for more information about your choices.
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