Can You Borrow Against a Roth IRA Before Retirement?

Can you borrow money from your Roth IRA? The short answer: Not really. Unlike many employer-sponsored retirement plans like 401(k) or thrift savings plans, there is no such thing as an "IRA loan." However, there are a few ways you could use the money in your Roth IRA early.

Contributions can be withdrawn early, penalty-freeFirst of all, your original contributions to a Roth IRA can actually be withdrawn at any time and for any reason. This is because you've already paid taxes on the money you contributed, so in the eyes of the government, it's yours to do with as you please. It's important to keep in mind that this only applies to contributions -- not your investment gains. For example, let's say that you contribute $40,000 to a Roth IRA over a 10-year period and your account is now worth $60,000. You are allowed to withdraw from your account tax- and penalty-free as long as you leave at least the $20,000 in investment gains in the account.

It's also worth mentioning that this isn't a loan -- you can't just put the money back in the account unless you do so under the rollover provision, which we'll discuss shortly. Roth IRA contributions are limited to $5,500 for the 2015 tax year ($6,500 if you're over 50), so beware that withdrawing your contributions can severely limit your account's ability to generate your retirement nest egg.

Acceptable reasons to withdraw earlySecond, there are some acceptable reasons for using any of the funds in a Roth IRA early. For example, you can withdraw up to $10,000 to use toward a first-time home purchase for you or as a gift. And, you can withdraw any amount if it's used to pay for qualified higher education expenses for you or a close relative. So, if your goal is to pay for either of these things, you can use your Roth IRA funds to do so.

A rollover can give you a short-term loanFinally, the IRA rollover rules can provide you with a sneaky way to take a short-term loan from your Roth IRA. As the rules are written, if you withdraw the money from your IRA, you have up to 60 days to deposit it into a similar account (meaning another Roth IRA). So, if you need to borrow the money for 60 days or less, this could be an option. However, only do this if you're absolutely certain you'll be able to deposit the money before the 60 days are up. Otherwise, you'll get hit with a 10% early withdrawal penalty.

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