Taking a Short-Term Loan From Your IRA

Dear Dr. Don,

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

Thanks,

-Alex Advance

Dear Alex,

Like your question, the answer is also simple: Yes. You can get an interest-free, 60-day loan from your traditional IRA. 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 Internal Revenue Service Publication 590 for more information.

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.

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 one-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 one-year period, from the IRA into which you made the tax-free rollover." So, you can take a short-term loan; just make sure you follow the rules and you should be fine.

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