How Can You Borrow from a Roth IRA? (2024)

Before addressing the question of how to borrow from a Roth individual retirement account (Roth IRA), here’s a quick refresher on how a Roth IRA works.Contributions to a Roth IRAare not tax deductible when you make them. However, your distributions will be tax free as long as you’re over age 59½ at the time and are making a qualified distribution. This untaxed status applies to both your original contributions and the gains on them.

What’s more, unlike traditional IRAs, account holders never have to takerequired minimum distributions (RMDs) from Roth IRAs in their lifetime. In fact, if you don’t need the money, you can leave the whole account to your heirs.

Key Takeaways

  • Internal Revenue Service (IRS) rules do not allow you to borrow from a Roth individual retirement account (Roth IRA) in the same way that you can borrow from and repay a 401(k).
  • Early withdrawals of earnings from a Roth IRA (before age 59½) carry a 10% penalty.
  • As long as money taken from a Roth IRA is replaced or rolled over into another qualified retirement account within 60 days, there is no penalty.
  • Distributions for purposes such as buying a first home or certain medical expenses can qualify for no-penalty withdrawals, but only if the Roth IRA has been open for five years or more.

Borrowing from a Roth IRA

Technically, you can’t take out a loan from a Roth IRA. But you are free to withdraw your contributions at any time without paying penalties. However, if you want to withdraw the earnings on your contributions, you may have to pay taxes on the gains as well as a 10% penalty.

There is also a way to work around Internal Revenue Service (IRS) requirements if you only need to borrow money for a short period of time. In either case, you’ll need to work with the financial institution that handles your Roth IRA to make sure you fill out the proper forms.

According to the IRS, you can make a tax-free withdrawal of some or all of the money in your Roth IRA as long as you put the money back into either the same Roth IRA or a traditional IRA within 60 days. This is called a Roth IRA rollover, and it’s often used to transfer 401(k) funds when you change jobs or want more investment choices than your 401(k) provides. When the money is given to you to be deposited into your bank account, it’s called anindirect rollover.

If you can’t repay the full amount within 60 days, you have the option to repay a partial amount. However, you’ll have to pay a 10% penalty on the portion of the money that you keep if that money is earnings, not original contributions. In addition, there is a one-year waiting period between rollovers. The waiting period begins when you receive your distribution—not when you pay the money back.

Remember that any money you take out of your Roth IRA and don’t replace will be that much less that you’ll have for retirement someday. You’re also losing everything that those funds could have earned by the time you retire.

If you need to use more than the contributions that you’ve made to your Roth IRA and won’t have the funds to repay the money within 60 days, you can make an early withdrawal. Most early withdrawals are subject to a 10% penalty. Or, you may be able to take a qualified distribution and avoid paying the penalty as well as taxes on the earnings—if it’s been more than five years since you set up and contributed to your Roth IRA and if one of the following circ*mstances applies:

  • The distribution is being used to buy, build, or rebuild your first home.
  • You’re at least 59½ years old at the time of the distribution.
  • You’ve recently become disabled.

Keep in mind that withdrawing money from your Roth IRA isn’t the best way to get a loan, especially if you can’t repay it within the 60-day window. Not only might you be subject to penalties and taxes, but funds taken out of the account won’t be earning tax-free returns and helping to build your retirement savings.

Advisor Insight

Rebecca Dawson
Dawson Capital, Los Angeles

Loans are not allowed from IRAs or IRA-based plans such as SEPs, SARSEPs, and SIMPLE IRA plans. Loans are allowed from qualified plans that satisfy the requirements of 401(a), annuity plans that satisfy the requirements of 403(a)s or 403(b)s, and governmental plans.

That said, the principal amount of a Roth IRA may be withdrawn without any tax consequence because you have already paid taxes on those funds...but the amount that your IRA has appreciated is not available for withdrawal without paying certain types of taxes and fees.

There are also exceptions, such as when you convert the funds from a traditional IRA into a Roth IRA. In that case, the converted amount may not be available for penalty-free withdrawal for five years.

Are Roth individual retirement account (Roth IRA) withdrawals taxable?

Withdrawals of Roth individual retirement account (Roth IRA) contributions are never taxed, no matter when or how much you withdraw. However, the earnings may be taxable if you make a withdrawal before age 59½ and if you’ve had the account for less than five years. You’ll also have to pay a 10% penalty unless you qualify for an exception, such as unreimbursed medical expenses or if you are buying your first home.

How else can you borrow money if you need it?

Here are a few suggestions for finding extra money when you need it:

  • Sell some assets. Consider putting valuables on eBay or selling clothing there or onthredUp (go to the Help Center and click on “Clean Out: Getting Started”). If you have recent-model electronics (laptops, large-screen TVs, tablets, phones, etc.), you can try getting cash on sites like Decluttr,Gazelle, anduSell.
  • Take on a side job. You could try pet sitting or babysitting for friends or start a neighborhood dog-walking service. Or you could sign up for jobs through a website like TaskRabbit or Thumbtack.
  • Tap your home’s equity. If you own your home and have sufficient equity, you may be able to take out a home equity loan.
  • Take out a personal loan. The interest on a personal loan is generally higher than on a mortgage or car loan because it is unsecured. You can calculate the difference in costs to find out if it makes more sense to get a personal loan or withdraw funds from your Roth IRA.

What happens if you can’t put back what you borrowed?

If you are unable to return all the funds to your Roth IRA within 60 days, you still can repay a partial amount. But there will be a 10% penalty on the amount of earnings that you keep. Also, you’ll have to wait one year before you can “borrow” money from your Roth IRA again. This action is called a rollover, and the waiting period starts when you get your distribution.

How Can You Borrow from a Roth IRA? (2024)

FAQs

How Can You Borrow from a Roth IRA? ›

Internal Revenue Service (IRS) rules do not allow you to borrow from a Roth individual retirement account (Roth IRA) in the same way that you can borrow from and repay a 401(k). Early withdrawals of earnings from a Roth IRA (before age 59½) carry a 10% penalty.

How do you borrow from a Roth IRA? ›

You are not allowed to borrow against an IRA whether the account is a Roth or traditional IRA. In the case of a Roth IRA you can withdraw the amount contributed to the account without taxes or penalties, but this is not a loan. Once this money is withdrawn it is gone from the account.

Can you pull money out of Roth IRA? ›

You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA.

How can I borrow from my IRA without penalty? ›

The following situations allow for penalty-free withdrawals from your IRA:
  1. Disability.
  2. Qualified higher education expenses.
  3. First-time homebuyers up to $10,000.
  4. Series of equal payments.
  5. Unreimbursed medical expenses.
  6. Distributions to qualified military reservists called to active duty.
Mar 27, 2023

How much will a Roth IRA grow in 20 years? ›

If you contribute 5,000 dollars per year to a Roth IRA and earn an average annual return of 10 percent, your account balance will be worth a figure in the region of 250,000 dollars after 20 years.

Can I borrow from my IRA to buy a house? ›

The easy answer to this question is yes: Per IRS rules, you can withdraw funds from your traditional IRA anytime, for any reason, including to use as a down payment on a home. However, there may be a significant penalty if certain circ*mstances are not met.

What are the rules for withdrawing money from an IRA? ›

You can take distributions from your IRA (including your SEP-IRA or SIMPLE-IRA) at any time. There is no need to show a hardship to take a distribution. However, your distribution will be includible in your taxable income and it may be subject to a 10% additional tax if you're under age 59 1/2.

What happens if I cash out my Roth IRA? ›

The early withdrawal penalty for a traditional or Roth individual retirement account is 10% of the amount withdrawn. Keep in mind that you may also owe income tax in addition to the penalty.

Can I take out money from Roth IRA without penalty? ›

You can withdraw your Roth IRA contributions at any time without penalty. But you can only pull the earnings out of a Roth IRA after age 59 1/2 and after owning the account for at least five years.

What are the 5 year rules for Roth IRA withdrawal? ›

The Roth IRA five-year rule says you cannot withdraw earnings tax-free until it's been at least five years since you first contributed to a Roth IRA account. This five-year rule applies to everyone who contributes to a Roth IRA, whether they're 59 ½ or 105 years old.

Can I borrow from my IRA and pay it back? ›

The short answer is that no, you can't borrow from an IRA. This prohibition on IRA loans applies to all types of IRAs, including traditional IRAs, Roth IRAs, SEP IRAs, and SIMPLE IRAs. If you attempt to borrow from your IRA — even if it's only a portion of your balance — the account will no longer be considered an IRA.

What qualifies for a hardship withdrawal from an IRA? ›

IRA Hardship Withdrawal Rules
  • Unreimbursed medical expenses that exceed more than 7.5% of adjusted gross income (AGI)
  • Qualified higher education expenses.
  • Purchasing your first home (no penalty on up to $10,000 early withdrawal)
  • Certain expenses if you're a qualified military reservist called to active duty.
Dec 22, 2023

How can I withdraw money from my IRA without paying taxes? ›

Contributions to a Roth IRA can be taken out at any time, and after the account holder turns age 59 ½ the earnings may be withdrawn penalty-free and tax-free as long as the account has been open for at least five years. The same rules apply to a Roth 401(k), but only if the employer's plan permits.

Is 30 too old for a Roth IRA? ›

Is 30 Too Old for a Roth IRA? There is no age limit to open a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one. 24 Opening a Roth IRA after the age of 30 still makes financial sense for most people.

How long does it take to become a millionaire with a Roth IRA? ›

Assuming a 10% return on your investments, it would take around 29 years with the same $6,500 per year contribution. Becoming a Roth IRA millionaire will take time. It is much more likely that people will become retirement account millionaires, which means taking into account their 401(k) and traditional IRA balances.

How much is a Roth IRA worth in 10 years? ›

Let's say you open a Roth IRA and contribute the maximum amount each year. If the base contribution limit remains at $7,000 per year, you'd amass over $100,000 (assuming a 8.77% annual growth rate) after 10 years. After 30 years, you would accumulate over $900,000.

How much can you borrow from Roth IRA for house? ›

Using a Roth IRA to buy a home

This is known as the five-year rule. However, IRS rules do allow you to withdraw up to $10,000 of Roth IRA earnings to help with the purchase (or build) of a first home. (Note: Only a first home.)

What is the 60 day rule for IRAs? ›

You have 60 days from the date you receive an IRA or retirement plan distribution to roll it over to another plan or IRA. The IRS may waive the 60-day rollover requirement in certain situations if you missed the deadline because of circ*mstances beyond your control.

Can you put money back into an IRA after withdrawal? ›

You can put funds back into a Roth IRA after you have withdrawn them, but only if you follow very specific rules. These rules include returning the funds within 60 days, which would be considered a rollover. Rollovers are only permitted once per year.

Can you do a Roth 401k loan? ›

(If you're borrowing from a Roth 401(k) account, the interest won't be taxed when paid out if your distribution is “qualified”–i.e., it's been at least 5 years since you made your first Roth contribution to the plan, and you're 59½ or disabled.)

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