Can I Borrow from an IRA?

The short answer is still no, you cannot truly borrow money from any type of IRA. This includes:

• Traditional IRA
• Roth IRA
• SEP IRA
• SIMPLE IRA

IRAs don’t allow formal loans the way a 401(k) does. However, there is one limited exception people often confuse with borrowing: the 60-day rollover rule.

The 60-Day Rollover “Workaround” (Not a Loan, But Functions Like a Short-Term One)

You are allowed to withdraw money from your IRA and put it back within 60 days without taxes or penalties. This is sometimes used as a short-term, interest-free “bridge,” but it’s important to understand the limitations:

• You can only do one 60-day rollover per 12-month period, across all your IRAs (not one per account).
• If you miss the 60-day deadline, the entire amount becomes a taxable distribution, and if you’re under 59½, it’s also subject to the 10% early withdrawal penalty.
• This is not a loan and not something the IRS encourages as a borrowing strategy.

So while IRAs don’t allow loans, the 60-day rollover technically gives you a narrow window to access your funds — but with strict rules and significant risk if mishandled.

or watch the video explanation here

Borrowing from a 401(k) Instead

If you have a 401(k) plan, many offer formal participant loans, which is one of the key advantages of 401(k)s compared to IRAs.ble. In fact, the ability to borrow from a 401(k) is one of its main advantages compared to an IRA.

Solo 401(k) Loan

Under Internal Revenue Code Section 72(p), a Solo 401(k) participant can take a loan from their 401(k) plan, as long as the plan documents permit it.

To be eligible for a Solo 401(k), you must run a business with no full-time employees other than yourself, a business partner, or a spouse.

If you already have access to a 401(k) plan through your employer that allows loans, taking a 401(k) loan can be a tax-efficient way to access funds.

Key details of a Solo 401(k) loan:

• You can borrow up to $50,000 or 50% of your account balance, whichever is less.
• Loans must be repaid over an amortization schedule of five years or less, with payments at least quarterly.
• The minimum interest rate is typically the prime rate, as published by the Wall Street Journal.

Using IRA Funds is a Distribution

If you need to access IRA funds for personal expenses—like paying off debt, covering tuition, or a home purchase—taking money from an IRA is considered a distribution.

Distributions can have tax implications and may reduce the future growth potential of your retirement savings.

Two Options Before Taking a Distribution from a Self-Directed IRA

1. Understand Tax & Penalties

Traditional IRA:

• Withdrawals before age 59½ are generally subject to ordinary income tax plus a 10% early withdrawal penalty.
• After age 59½, ordinary income tax may still apply, but the 10% penalty does not.

Roth IRA:

• Contributions can always be withdrawn tax- and penalty-free.
• Earnings are subject to ordinary income tax and a 10% penalty if withdrawn before age 59½ and before the Roth IRA has been open for at least five years.
• Qualified distributions (after 59½ and at least five years of funding) are tax-free.

2. Explore Alternatives

Instead of taking a fully taxable IRA distribution, you may have more tax-efficient options:

• 401(k) Loan – If your 401(k) allows loans, you may borrow up to $50,000 or 50% of your account balance, whichever is less, without triggering taxes or penalties.
• Substantially Equal Periodic Payments (SEPP/72(t)) – You can take distributions as part of a series of substantially equal payments over your life expectancy. Taxes may apply, but the 10% early withdrawal penalty is avoided.
• Hardship Distributions – For IRAs, withdrawals due to immediate and heavy financial need or other qualifying circumstances may be allowed under IRC Section 72(t), including:
  • Unreimbursed medical expenses exceeding 7.5% of your AGI
  • Qualified higher education expenses
  • Health insurance premiums after job loss
• First-Time Home Purchase – You can withdraw up to $10,000 per IRA account for a first-time home purchase without incurring the 10% early distribution penalty.

Key Takeaways

• You cannot borrow from an IRA, but 401(k) loans are a viable alternative if available.
• Taking a distribution from an IRA may have tax and penalty consequences, so it should generally be a last resort.
• Consider all options, such as 401(k) loans, SEPP, or hardship distributions, before reducing your retirement savings.

Need Guidance?

For questions about IRA rules or Solo 401(k) loans, schedule a free consultation with a member of our new accounts team to get all your questions answered.