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Tags: Retirement | borrowing against your ira | dos | donts

Do's and Don'ts of Borrowing Against Your Traditional IRA

By    |   Tuesday, 28 April 2015 01:22 PM

If you owe a debt you cannot pay, you might want to consider borrowing against your IRA. The federal government allows IRA holders to take out an interest-free, short-term loan, known as a "rollover" from their IRA.

However, borrowers must follow the rules carefully to avoid paying a penalty. Here are some do's and don'ts for borrowing against your traditional IRA:

Do: Pay the money back and place it into the same IRA or another traditional IRA within the 60 calendar day window required by federal law.

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Don't: Miss the deadline. If you do, the transaction will likely be considered a distribution and you'll owe income tax on it, according to Bankrate. In addition, you'll probably also owe a 10 percent early withdrawal penalty if you're younger than 59 and a half, the age at which the federal government begins allowing people to withdraw money from their IRAs without penalty.

The IRS can waive the 60-day rule if you provide a good reason, such as having been ill or misled by an adviser, reports Nasdaq.

Don't: Pay back less than the full amount you borrowed. Any money you don't pay back is a taxable distribution and may also be subject to the 10 percent early withdrawal penalty if you're younger than 59 and a half.

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Don't: Roll over money from an IRA less than 12 months after previously rolling money over out of the same IRA. IRA holders who break that rule will likely be fined 6 percent for making excess IRA contributions — and the IRS lacks the authority to waive that rule, according to Nasdaq.

Do: Consider withdrawing money from your IRA to help finance the purchase of a home. The IRS allows up to $10,000 in penalty-free withdrawals from your traditional IRA to be used toward a first-time home purchase, reports the Motley Fool.

Do: Consider looking into whether you're in any other situation in which the government may allow you to avoid a penalty for withdrawing money from your IRA. Penalties may be avoidable in situations involving such things as health expenses, medical insurance, educational expenses and disability, according to Charles Schwab.

An Extremely Simple Way To Determine If You're Ready To Retire — Find Out Now

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If you owe a debt you cannot pay, you might want to consider borrowing against your IRA. The federal government allows IRA holders to take out an interest-free, short-term loan, known as a "rollover" from their IRA.
borrowing against your ira, dos, donts
394
2015-22-28
Tuesday, 28 April 2015 01:22 PM
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