Sometimes you need extra cash and it’s hard to find a good source. Borrowing from your IRA is an interesting option that you might not know about.

If you take money from your Individual Retirement Account (IRA), you have to pay tax on it – as well as penalty tax of 10 percent if you are under age 59-1/2.
(This is just Federal tax. Your state can also impose tax and penalty.) This can make using IRA money expensive because the tax can add up to over 50 percent!
If you only need the funds temporarily, you can borrow money from your IRA without paying tax as long as you pay it back within 60 days.
This resource can be a lifesaver when needed but there are two important caveats. You can only do this kind of transaction once every 12 months and you MUST repay the money within 60 days.
What if you forget and repay the money in 61 days?
Up until recently, the 60 day rule was black and white. There was no way the IRS would allow tax free status if the deadline was missed – no matter the excuse or how close the payback was to 60 days. And, the consequences for missing the deadline are onerous: Tax and penalties apply to the full distribution.
Let’s look at an example. Let’s say that Leslie needs $50,000 for five weeks.
Her IRA has a balance of $75,000 and that is her only savings. Leslie takes a distribution of $50,000 and then is unable to pay it back within 60 days. As a result, she owes $25,000 in Federal and state income taxes and penalties. If she wants to use the remaining money in her IRA to pay these taxes, she will owe taxes on that! So, you can see how taking money out of an IRA can be dangerous if the funds aren’t repaid on time.
In a recent IRS ruling (Revenue Procedure 2016-47 dated August 24, 2016), the IRS will waive the dire tax consequences for “reasonable cause.”
Acceptable reasons include:
• The distribution check was lost.
• The check was deposited into the wrong account by accident.
• The taxpayer’s home was severely damaged.
• There was a death in the family.
• The taxpayer or family member was seriously ill.
• There was a postal error.
• There was an error by the financial institution.
Additionally, the repayment must have been made as soon as possible after the late payment was discovered. Thirty days after discovery is automatically acceptable by the IRS.
Although it is possible to get a waiver for repaying an IRA loan after 60 days, it is best to carefully follow the rules.
By doing so, you have the opportunity to give yourself an easy temporary loan when you need it.