How to Take a Loan From a Roth IRA?

Research Your Investments Carefully

Technically, you cannot borrow from your Roth individual retirement account. However, you can make withdrawals equal to the amount of your current year Roth IRA investment as long it is returned by the April tax deadline of the following year. This article explores other considerations for using funds from your Roth IRA.

Instructions

1. Make Roth IRA contributions of after-tax income up to $4,000 per year. Roth IRA accounts do not allow borrowing from the account for home purchase, college expenses or other needs. Do not use Roth IRA accounts if you think you will need to borrow frequently.

2. Withdraw an amount equal to the amount contributed to a Roth IRA in the same year. Repay the amount withdrawn by April 15 of the following year. Technically this is not a loan but a withdrawal followed by a return of principal.

3. List a Roth IRA as an asset on your balance sheet. You cannot borrow against the asset directly but the amount of the Roth IRA will aid in obtaining a loan. If you are eligible to begin withdrawals from your Roth you can guarantee loan interest and principal repayment from the Roth withdrawal.

4. Convert an existing IRA account to a Roth IRA. Transfer all monies from the IRA to the Roth within 60 days. Use the 60-day period as a temporary loan. Make certain the conversion is completed and funds deposited within 60 days.

5. Because you can't borrow from the Roth IRA, consider borrowing from your retirement plan or 401k plan. These plans allow borrowing for an extended time frame.

Tips & Warnings

• Use a tax professional to evaluate the best way to borrow against retirement monies.

• Understand that a withdrawal before age 591/2 results in a 10 percent tax penalty.

References

• Rules of the Roth IRA

Resources

• Roth IRA Considerations