-- Kelly, from Hawaii
The good news is that it's simpler than you're making it. The bad news is that you can't, technically, borrow from your IRAs. What you can do, however, is to take the money out of your IRA. As long as it's redeposited into a new IRA within 60 days, it isn't considered a distribution. There are no damaging tax implications or penalties. It is like a 60-day loan. But, that wouldn't be your best approach.
If you're a first-time homebuyer, you can take up to $10,000 out of your IRA to buy, build or rebuild a first home without the distribution being subject to the 10 percent penalty tax. If the contributions to the IRA were made with pretax dollars, you still owe income taxes on the distribution.
If your 401(k) plan permits it, you can borrow against your plan balance. The loan limit in a 401(k) plan generally is $50,000 or 50 percent of your vested account balance, whichever is less. The loan typically must be repaid within five years, unless the loan is used to buy the plan participant's principal residence, and then the repayment can take longer. Talk to your employers about loan options available to you from the two 401(k) plans.
The downside to a plan loan is that it comes due upon separation from service, meaning employment. If you are laid off, the loan comes due. If you're unable to pay it back, then the loan balance is considered an early distribution subject to both income taxes and the 10 percent penalty tax if you're underage.
Between the first-time homebuyer's provision in your IRAs and your ability to take out 401(k) plan loans, there's no need to play financial hot potato with an IRA rollover contribution to get a 60-day loan.
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