The funds you contribute to an Individual Retirement Account will typically stay in the account until you reach retirement age. However, if you owe a debt and don't have the funds available to pay it, you may consider borrowing the money from your IRA. While this is possible, you must follow the rules carefully if you want to avoid a penalty.
The Internal Revenue Service allows owners of IRAs to borrow money from their accounts for up to 60 days at a time. As long as the account owner redeposits the money within 60 days, the IRS will treat the transaction as a tax-free rollover. You can borrow from each of your IRAs once each year, and you can redeposit the funds into any of your IRAs after you borrow them. However, each IRA account can receive only one tax-free redeposit of borrowed funds in any 12-month period.
If you fail to redeposit the money by the deadline, make more than one withdrawal from the same account in one year, or redeposit funds into the same account more than once in a single year, you will owe a 10 percent penalty on the amount you borrowed when you broke the rules. The IRS will also require you to include the amount in your taxable income for the year.
Only repay a debt with money from your IRA if you will be able to redeposit the money by the IRS's deadline. For example, if you owe money on a credit card, you can borrow from the IRA to repay it immediately and avoid the credit card's interest. However, if you can't put the money back into the IRA within 60 days, you will lose the money you saved on interest in the taxes and penalties you owe to the IRS. Conversely, if you know that you will receive a windfall within the next 60 days, such as a Christmas bonus, you can borrow from your IRA, pay your debt, and get the money back into the account before the deadline.
In some cases, you might be able to take early withdrawals from your IRA without incurring a penalty. The IRS allows early withdrawals for certain unexpected debts, such as expenses related to the repair of your home, funeral expenses for your spouse or children, tuition expenses or medical costs. However, the amount you withdraw must not be more than the expense you need to pay, and you must show that you couldn't reasonably obtain the money from another source.