Technically speaking, yes—you can borrow from your IRA without a penalty. The 60-day rollover rule applies to all types of IRAs. This rule allows you to withdraw assets from your IRA if you repay the full amount within 60 days.
Not Taxable or Subject to Early Distribution Penalty
This is technically not a "loan," but a provision that allows temporary use of IRA savings outside of your IRA. This is by definition, a "distribution" and a "rollover" of the distributed amount.
Here are some important reminders, however:
- Generally, you can perform an IRA-to-IRA rollover only once during a 12-month period. According to a tax court ruling, all of your traditional IRAs are treated as one IRA for this purpose as of January 1, 2015. (Prior to this date, the IRS applied the rule separately to each of your IRAs involved in such a distribution or rollover.)
- The same assets you withdraw must be the same assets that you roll over to your IRA. For instance, if you withdraw cash, you must roll over cash.
- Only eligible amounts can be rolled over.
Special Considerations Due to COVID-19
Rules about borrowing from your IRA have changed as a result of the March 2020 passage of the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). The CARES Act, meant to provide economic relief amid the COVID-19 pandemic, gives eligible participants more leeway in terms of the length of the loan and the timeline for repayment.
An eligible participant, as defined by the law, is a person who has been diagnosed with COVID-19, has a spouse or dependent diagnosed with COVID-19, or has experienced a layoff, furlough, reduction in hours, or inability to work due to COVID-19 or lack of childcare because of COVID-19.
Eligible participants can take an early withdrawal of up to $100,000 from 401(k)s, 403(b)s, 457s, and traditional IRAs without paying a 10% penalty. An individual has up to three years to pay the taxes on the early withdrawal or to redeposit the money back into their retirement account (versus the standard repayment requirement of 60 days).
Retirement plans are not required by law to accept this modification of early withdrawal rules, but most plans are expected to follow suit. The law covers withdrawals made between January 1, 2020, and December 30, 2020.