Can I borrow from my IRA?

by Grant HEnson

*The owners of this website may be paid to recommend some precious metals companies. The content on this website, including any positive reviews of these companies and other reviews, may not be neutral or independent.

Considering borrowing from your IRA, an account meant to secure your financial future? Now, opening an IRA account is ideal for building a nest egg and seeking tax benefits while preparing for a financially stable future. Such retirement accounts allow you to withdraw your savings after reaching 59 ½ years of age, without facing any tax penalties. 

But, in situations like paying off debt or covering emergency financial needs, you might want to seek financial support from your IRA savings account. But is that really an option? And how can you cater to these short-term and immediate financial needs without an IRA? 

In this guide, we’ll cover IRA rules, tax implications, early withdrawal costs, alternatives and more, to help you decide if borrowing from an IRA is the right decision.

Can You Borrow from an IRA?

Generally, no. You cannot "borrow" from an IRA per se! 

According to the IRS guidelines, as mentioned earlier, you can start withdrawing from your IRA account after you reach a specific retirement age of 59 ½. These withdrawals do not have any tax penalties, allowing you to make the most of your years of savings once you reach retirement age. This doesn't mean you cannot withdraw funds from your IRA account before reaching the specified age. 

Instead, the IRS guidelines permit early withdrawals in certain situations only. However, these withdrawals are subject to additional tax, which varies depending on the type of IRA account you have and when you plan to process the withdrawal. For instance, if you own a SEP-IRA account, you must pay 10% additional tax on the taxable amount you withdraw from your account. 

On the other hand, if you take the money out of your SIMPLE IRA account within 2 years of starting the account, you will have to pay 25% more tax. But if you withdraw from a SIMPLE IRA after the 2-year period, you only pay the 10% tax penalty.

Exceptions to the Rule 

IRS guidelines for early IRA withdrawals may appear to impose additional taxes, but there are exceptions where you can avoid this tax. You won't face a tax penalty if your early withdrawals meet the following financial needs:

1. Unreimbursed Medical Expenses

You can tap into your IRA without a tax penalty if you lack health insurance or have out-of-pocket medical expenses not covered by insurance. 

However, this exemption applies only if you use the funds in the same calendar year as the withdrawal. Additionally, the amount you withdraw from your IRA can only be used to cover unreimbursed medical expenses that exceeds 10% of your adjusted gross income (AGI), which is your gross income minus income adjustments. If you have a spouse aged 65 or older, the threshold is reduced to 7.5% of your AGI.

For instance, if your AGI is $100,000, and your unreimbursed medical expenses are $15,000, you can only withdraw from your IRA for the $5,000 that exceeds 10% of your AGI (10% of $100,000 = $10,000). However, as we already stated, if you have a spouse aged 65 or older, you can withdraw to cover expenses over 7.5% of your AGI — or in this case $7,500.

2. Health Insurance Premiums During Unemployment

If you’re unemployed and need to pay your health insurance premiums, having an IRA account can be of great help. This is mainly because the IRS permits penalty-free withdrawals for unemployed individuals who must pay their medical insurance premiums. You can rely on your IRA savings for the time being without having to pay a tax penalty. 

3. Higher Education Costs

In the current economic climate, rising costs have meant that higher education is hard to afford for many people. 

This is where IRS guidelines become more lenient for IRA holders who must pay for their children's higher education. Simply put, you can pay for your own, your spouse's, or your child's eligible higher education expenses by seeking an early withdrawal from your IRA. You will be exempt from the 10% tax penalty in these circumstances. 

Below are some eligible educational expenses that you can pay through penalty-free early IRA withdrawals:

  • Tuition
  • Fees
  • Books
  • Educational materials/equipment

If your educational expenses fall outside of these categories, consider consulting a trustworthy tax practitioner to check whether you are eligible for a penalty-free withdrawal. 

4. A Permanent Disability

IRA account holders with a permanent disability are also eligible for a penalty-free early withdrawal from their savings account. Unlike other early withdrawal exceptions, people with a permanent disability can withdraw from their IRA account and use the distribution for any purpose (there are no limitations on how you can use the funds). However, you might have to provide proof of impairment to your IRA administrator before processing the penalty-free withdrawal. 

5. You Receive an IRA Inheritance

If you are the beneficiary of a SIMPLE IRA and its owner has passed away, you don't have to pay the 10% penalty on your early withdrawal.

However, this exception does not apply if you are the original account holder's spouse and want to roll the funds into your non-inherited IRA. In this situation, the IRA is considered as if it were yours to begin with. As a result, the 10% early withdrawal penalties remain in effect.

6. To Purchase, Construct or Rebuild a Home

Another exception the IRS makes for penalty-free early IRA withdrawals is when you need financial assistance to purchase, construct or rebuild your home. In this case, you can withdraw up to $10,000 (the lifetime limit) from your IRA penalty-free to buy, build or rebuild a home. 

Notably, this withdrawal option is limited to first-time homebuyers, but the definition of this is quite loose. As long as you have not owned a home in the previous two years, you can qualify for this early withdrawal. If you bought a home 5 years ago and sold it 3 years ago, you can still seek this withdrawal without incurring any additional tax.

7. Substantially Equal Periodic Payments

If you need to make monthly withdrawals from your IRA for a few years, the IRS enables you to do so without penalty through Substantial Equal Periodic Payments (SEPP).

You withdraw a regular amount required (calculated using one of three IRS-approved ways shared on their website) every year for five years or until you reach 59 ½ (whichever comes first). 

8. To Fulfill an IRS Levy

For individuals who have to pay delinquent federal taxes, the IRS can take money from your IRA to pay them. When the IRS collects money directly from your IRA account account, the 10% penalty doesn't apply. However, you cannot withdraw the money to pay taxes and dodge the levy. If you do that, the exception won't work and you will be subject to 10% tax.

9. Involved in Active Duty

Lastly, early distributions from IRA accounts of qualified reservists are also not subject to the 10% penalty. In general, these are payments provided to a military reservist or member of the National Guard who was summoned to active duty for at least 179 days after September 11, 2001.

Moreover, you can sometimes repay the dividends if your repayment contributions exceed the yearly contribution restrictions. Just do it within two years of your discharge from active duty.

60-Day Rollover Rule

What if your reason behind borrowing from an IRA isn't any of the exceptions above, but you want to avoid a tax penalty? Don't worry, you can count on the 60-day rollover rule. 

As the name suggests, the 60-day rollover is a short-term loan without tax penalties. Typically, money taken from an IRA to spend is penalized with an additional tax. However, under the 60-day rollover rule, you have 60 days to rollover funds from any other savings account to an IRA account. This rule applies during the early days of opening an IRA account. The reasons behind moving funds from an IRA account during these 60 days can vary; it can either be to move funds to a new bank or as an accidental process. 

For example, suppose you have an IRA and a stock account, and you accidentally liquidate your funds to the IRA account instead of the stock account first. Thankfully, the IRS rule in Section 408 mentions that an account holder can fix this mistake by moving the money between different accounts. This section says an IRA payout can be treated as a "rollover" into a new account. 

Under the rules, you can take out the money from your IRA without being taxed only if you put back the amount in the same or another IRA account within 60 days. This not only helps you solve the mistake of funding the wrong account, but also allows you to use your funds as a short-term loan. Later, you can proceed with the rollover contribution of the same amount to your IRA account within 60 days to avoid additional tax. 

Tax Implications

As mentioned earlier, the tax penalty for unauthorized early withdrawals from your IRA is 10% of the withdrawn amount. However, evaluating the tax penalty you must pay for an early withdrawal that does not fall under penalty-free exceptions can be challenging. To better help you calculate, let’s discuss how early withdrawals from an IRA account are taxed:

Early Withdrawal Tax Penalties on a Traditional IRA

You need to multiply the taxable payout amount by 10% to compute the penalty for an early withdrawal. A $10,000 early distribution/withdrawal, for example, would result in a $1,000 tax penalty and would be considered (and taxed) as additional income.

Note: IRA tax deductions may include state taxes based on location. So consult a financial professional or your tax administrator to determine the tax penalty you must pay for early withdrawals.

Alternatives to Borrowing from an IRA

While the early withdrawal option from an IRA is always there, we suggest you evaluate the alternative funding options when you need urgent finances. Speaking of which, below are some options you can explore before heading to your IRA savings: 

Emergency Savings

You never know when an emergency might knock on our door. The best way to prepare is by saving in advance for a rainy day. This is always a safe way to ensure you can handle any kind of emergency without financial constraints. In fact, emergency savings are an ideal solution to handle any financial challenge without having to ask or wait for a third-party financing institution to fund you, i.e., through a loan or other methods mentioned above. 

Dont’ worry if you don’t already have emergency savings available, as we all start somewhere. You can always consider other alternatives while starting your savings plan today. 

Family and Friends

If you don't have the option to consider alternative funding methods, you can always rely on your friends and family in times of need. As long as you commit to the payback time and maintain a healthy relationship with the friend or family you borrow from, it is fine to lean on the people around you in difficult times.


  • Borrowing from your IRA gives you more financial flexibility. You can utilize the funds for various purposes, including debt repayment, property purchase, and unforeseen needs.
  • Unlike typical loans or credit cards, borrowing from your IRA does not require a credit check. If you have a low credit score, this can be useful.
  • Borrowing from your IRA does not require you to go through a formal approval process or submit collateral because you are effectively borrowing from yourself.


  • When you withdraw funds from your IRA, you diminish the possibility for long-term growth. This can significantly impact your retirement funds, especially if you do not repay the IRA loan on time.
  • You have to pay a 10% additional tax on the amount you borrow if you are under the age of 59 ½.
  • Because the borrowed money is not in your IRA, it is not eligible for possible investment gains. In the long run, this can be costly, impacting the compounding of your retirement savings.
  • If you can't repay the borrowed amount on time, it may be considered a distribution, which is subject to taxes and penalties. This can have a long-term impact on your retirement funds.

Frequently Asked Questions

What reasons can you withdraw from an IRA without penalty?

Some of the common reasons that allow you to withdraw from your IRA account without any tax penalty include medical expenses, higher education expenses, permanent disability, home purchase, and paying health insurance premiums during unemployment.

Can I close my IRA and take the money?

Yes, you can close your IRA account and take out the money without paying any tax penalties after the age of 59 ½. However, if you plan to close your IRA account before this age without any tax penalties, you can move the funds to another IRA. Alternatively, if you have an employer-sponsored 401(k), you can transfer the funds into it, if your 401(k) plan administrator allows.

What are the rules for withdrawing money from an IRA?

According to the IRS guidelines, you need to be 59 ½ to start withdrawing from your IRA account without paying any additional tax. Before reaching the retirement age of 59 ½, you must pay a 10% additional tax on any amounts withdrawn from your IRA.


Having an IRA account means that you can enjoy a financially stable future. However, you may sometimes need financial aid before you reach retirement age. It may seem logical to borrow from your IRA savings account, but the additional 10% tax penalties for early withdrawals may be additional financial pressure. 

With the alternatives to borrowing from an IRA mentioned in this article, you can meet your immediate financial needs without risking your financial future. However, if you feel like withdrawing from an IRA is the only option left, consider early withdrawals' costs, benefits, and drawbacks before deciding. 

We hope this detailed guide will help you make a smart decision to fulfill your immediate financial needs.

Related Articles