How to Borrow From a Roth IRA

A Roth IRA is an investment option for placing funds to grow toward retirement. The Roth IRA is chosen over other types of retirement plans for a few reasons. For instance, the Roth IRA does not require mandatory distributions of funds at a certain age. Additionally, the Roth IRA allows withdrawals to be made without penalty for certain things, such as the purchase of a new home. Other factors may go into the decision of which type of retirement plan to invest in, such as whether money can be borrowed from the plan and the specific rules of how this can happen. This article will explore how to borrow money from a Roth IRA.

Step 1

Borrow money from your Roth IRA up to the amount you contributed this tax year. There is only one way to borrow from a Roth IRA and be able to put the money back into the investment. If you invested $3,000 into your Roth IRA in the tax year of 2008, you could take this $3,000 back out during 2008. You would have until April 15, 2009, to put this money back into the Roth IRA. Otherwise, you would lose the option. Technically, this isn't really considered borrowing. You are simply taking out the money you invested in the tax year and putting it back before the end of the tax year.

Step 2

Borrow the money during the transition process of converting a traditional IRA to a Roth IRA. If you are going to convert your traditional IRA to a Roth IRA, you will take the money out of the traditional IRA and then place it into the Roth IRA. When you take the money out of the traditional IRA, you have 60 days to then reinvest it into the Roth IRA. This means that during this 60 days, you can borrow the money that was going to be put into the Roth IRA and then put it back.

Step 3

Realize that you can borrow from some other types of retirement plans, but in general, you can't borrow from a Roth IRA. The examples in Steps 1 and 2 show ways to borrow money from a Roth IRA either in the year of investment or during the conversion from a traditional IRA to a Roth IRA. Once the money is in the Roth IRA and the tax year is over, there is really no way to borrow from your Roth IRA. However, you can borrow from an employer-sponsored retirement plan. You can take a loan from the retirement plan and then pay it back, with interest. To do this, you normally have to no longer be employed by the company.

Step 4

Withdraw the amount of your contributions. You can't borrow from your Roth IRA once the tax year is over, but you can withdraw funds up to the amount of your contributions without any type of penalty. If you invested $2,000 in 2007 and $4,000 in 2008, you can withdraw up to $6,000 without incurring a penalty. You can't put the money back in later, but at least you aren't subject to any penalties.

Step 5

Take a distribution from your Roth IRA. This doesn't allow you to borrow from the Roth IRA, but does allow you to access the money without penalties. Under certain circumstances, you can take a distribution from your Roth IRA without any penalties before you reach age 59 1/2. For example, once you have held the Roth IRA for five years, you can take distributions without penalty if you become disabled or up to $10,000 for the purchase of a first home. Keep in mind that you still have to pay any applicable taxes.

Step 6

Undo a Roth conversion, and then borrow money when you later redo the conversion. This one is a bit more complicated. If you convert a traditional IRA to a Roth IRA and then find out during the same tax year that the value of the Roth IRA went down substantially, you may wish to undo the Roth conversion, and place the funds back into the traditional IRA. Once you do this, you can then convert the funds over to a Roth IRA again. This must all occur before the deadline for filing taxes on April 15 of that tax year. During this conversion, you once again have the 60-day window in which to get the funds from the traditional IRA to the Roth IRA. You can borrow money from this and then put it back within the 60 days.

Step 7

Reach age 59 1/2 and take the money out of your Roth IRA. Once you reach age 59 1/2, you can access the funds in your Roth IRA without penalty. This isn't considered borrowing the funds and you can't replace them, but you can take them out of the Roth IRA without penalties, subject only to any applicable taxes.


When you choose a type of retirement plan, determine your potential needs in advance. If you think you might need to borrow money from your retirement plan often, a Roth IRA might not be the best decision for you. See IRS Publication 590 for more information on IRAs. See the eHow articles listed in the resources for more information on Roth IRAs.


Any time you are going to undo a Roth IRA conversion, withdraw funds from a Roth IRA or whatever the case may be, it will be useful to consult a financial and/or tax adviser, so that you are sure to go about things the right way.

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