Taking a short-term loan from your IRA

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Don TaylorDear Dr. Don,
My question is a simple one. Can I withdraw money from my individual retirement account for 60 days?

-- Alex Advance

IRA egg © Bryan Sikora -

Dear Alex,
This is an easy one: The answer is yes, you may take a 60-day loan from your traditional IRA interest-free.

But some care is called for here. You must be sure to pay the money back into the same account or another traditional IRA within the mandatory 60-day window. The count involves calendar days, not business days. If rolling over one Roth IRA to another Roth IRA, there are similar rules in place. You can check IRS Publication 590 for more information.

Fail to pay back? You'll pay

What if you fail to pay back the loan in a timely fashion? Unless you qualify for a waiver or extension of the 60-day rollover requirement, the transaction will be considered a distribution out of the account. If so, you'll owe income tax on the distribution. If it's an early distribution (before age 59 1/2), you could owe an additional 10% penalty.

Not a credit card

Keep in mind that this would not be a revolving loan. That means you could not return the funds to the traditional IRA and then take the money back for another 60-day loan. As the IRS puts it, "Generally, if you make a tax-free rollover of any part of a distribution from a traditional IRA, you cannot, within a 1-year period, make a tax-free rollover of any later distribution from that same IRA. You also cannot make a tax-free rollover of any amount distributed, within the same 1-year period, from the IRA into which you made the tax-free rollover."

The good news here is that you can take a short-term loan. Be sure you follow the rules and you should be fine.

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