William Shakespeare said, “neither a borrower nor a lender be.” But sometimes it can’t be helped. For instance, you may need cash in a hurry with few places to turn.
Strategy: Tap into your IRA if all else fails. As long as you replace the funds in the IRA within 60 days, you won’t owe any federal income tax or penalties.
Is it legal? Admittedly, the IRS isn’t wild about the idea, but you’re in the clear as long as you meet the technical requirements under the law.
The IRS treats a regular loan from an IRA as a “prohibited transaction.” In other words, you simply can’t do it. If you do borrow funds, any amount you receive is taxable at ordinary income rates. Plus, you’ll owe a 10% tax penalty on top of the regular income if you’re under age 59½ (unless one of the tax-law exceptions applies.)
But the tax law allows you to use IRA funds for 60 days if you put the same amount back in your IRA within the 60-day deadline. It doesn’t have to be the same money or the even the same IRA.
If you go past 60 days, at least you can replenish some of the funds through IRA contributions. The deadline for contributing to an IRA for the 2012 tax year is April 15, 2013.
Tip: The maximum IRA contribution is $5,500 for 2013 (up from $5,000). For both 2012 and 2013, you can add an extra $1,000 if you’re age 50 or older.
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