Ira Loan

Frequently Asked Questions

1. QUESTION:
   Is there any way to get a loan using your ira account as collateral?
   If i had a 97K in an IRA, is there any way to get a loan aganist that? I have debt and am trying to get some ease from the debt. I do not really want to cash out the account because of penalties and the amount of money i would loose in the process. Are there any such options?

   • ANSWER:
     IRS pub 590, page 45.
     prohibited transaction such as borrowing money against it will cause your account to be no longer an IRA, fully distributed, fully taxable and penalized at 10%.

     Adding ,000 to your income will cause you to owe ,000.

2. QUESTION:
   Can a pretax 401k to IRA rollover be used for housing loan?
   I live in Missouri. I rolled over my pretax 401k in to an IRA and have made no further contributions. Can I take a loan against this IRA for primary housing penalty free? Thanks.

   • ANSWER:
     No.
     You can not make a loan or take out the money out of an IRA.
     There is a little known rule.
     You can take out the money – but only if you make sure you replace it in full within a 60 day period.
     *** Not sure why this rule was ever allowed *****
     /

3. QUESTION:
   Can you take out a loan against an IRA that was originally a 401K?
   To be more specific, I currently have a 401K plan with my current employer. I can take a loan against it. But let’s say I resign from my job, convert the 401K to a traditional IRA (to avoid any distribution at that point), can I later take a loan against that IRA (just like I could’ve when it was a 401K)? Thanks in advance!!

   • ANSWER:
     No. Loans from IRAs are not permitted by law – only withdrawals.

4. QUESTION:
   what are tax implications if i use traditional ira money for home loan?
   i am retiree with home.want to purchase second home out of state,would need to use twenty percent
   for home loan to come from my traditional Ira. About twenty five thousand or so. I would be able to pay mortgage loan on a thirty year . what are my tax implications. i am in lower tax bracket.

   • ANSWER:
     There are several implications in that if the IRA isn’t completely Vested or matured or if you haven’t reached the full retirement age to withdraw a portion then you can be penalized upwards of 30% in taxes.

5. QUESTION:
   Can you take a loan from an IRA to purchase a home or for down payment?
   Can you take a loan from your IRA or make a withdraw to purchase a home or to have a down payment? Will I pay taxes and/or penalties for early withdraw? I have heard stories about first time home buyers but the home is not my first.

   • ANSWER:
     1) You can not take a loan from an IRA. That is what is called a “prohibited transaction”. The amount of the “loan” would be considered a distribution and subject to taxes/penalties.

     2) Assuming that your IRA is a pre-tax traditional IRA, any withdrawal will be subject to tax.

     3) There is an exception to the 10% penalty on the first ,000 if you are a first time homebuyer. For purposes of this rule, a first time homebuyer is anyone who has not owned a home for the previous two years.

6. QUESTION:
   Can i rollover an IRA to payback a 401K loan I took out without being taxed?
   Took out a 401K loan to buy a house. I want to payback the loan asap and I was wondering if I can use my IRA from a different account to payback the 401K loan without any tax penalties?

   • ANSWER:
     If you break an IRA you will have to pay taxes on the distribution.
     Not a good idea.

     With a roth there is a little known rule:
     You can take out ,000 for the purchase of your first home without a penalty.
     But, you need to fill out forms before you take the money out, and before you actually buy the home.
     (this may be what your mind is thinking of).

     Just hunker down, and start cutting expenses like your hair is on fire to pay back that loan.

7. QUESTION:
   What is for first-time homeowner – withdrawal from IRA or loan from 401K?
   I can borrow ,000 from my 401k for my new home. What I am wondering is – is it better to borrow ,000 from my 401k and then take an early withdrawal ,000 from my Roth IRA, or is it better to borrow ,000 from my 401k? It is a first home so there should be no tax penalties associated with either method.

   Thanks -

   • ANSWER:
     Depending on how long you’ve had the Roth IRA, you may be able to withdraw some or all of that without paying taxes.

     Since the ,000 is being borrowed from you and payed back to you (with interest), I’d go that route, unless you can withdraw the ,000 tax-free from the Roth. Then it is your call

     The other consideration is the monthly payment – you’d reduce your monthly repayment by around 0 if you can withdraw the ,000 from your Roth tax-free.

     Best wishes!

8. QUESTION:
   Withdraw from Roth IRA to pay College Loan?
   Using Roth IRA to pay college expenses. I have a college loan and want to bring down monthly payments. One load is private loan at about 10%. I have money in my roth ira and i have heard in certain events you can withdrawal money such as for school. I am 24 and have about 60k saved up in the Roth IRA and am looking to take about 6k to pay this high interest loan. Could i do this? How would i go about doing it? I have had my Roth Ira since 2008.

   • ANSWER:
     You can withdraw anything you put into a Roth with no penalty. You only need to pay tax and penalty on the gains.
     60K in an IRA at 24! Good for you keep up the good work.

9. QUESTION:
   Should I use my IRA to pay off my credit card and auto loan?
   I am 26 yrs old and have 6500 in credit card debt and 00 remaining on an auto loan. I was thinking of using most of my IRA to pay off these loans. Being that I’m still in my mid- twenties and having 30+ years to save up for retirement, it seems like a good idea. Plus I’ll be able to aggressively save after I pay off these loans, both retirement and cash reserves. Good or bad idea?

   • ANSWER:
     Bad Idea.

     Since you are under 59 1/2, you will incur a penalty on top of the taxes. You will lose about 40% of your IRA amount to taxes/penalties. In essence, you are taking a loan with a 40% interest rate. Would you go to a bank and take out a loan at 40% interest to pay these debts off? No.

     Bad Idea.

     Leave the IRA alone.

     Instead: get on a written budget and stick to it. Cut out the extras in your life. No eating out, no more purchases of cr@p you don’t need but just want etc.

     Then list your debts in order from smallest to largest. Make minimum payments on all debts except 1. That debt you throw every bit of extra money you have at it and pay it off. When the 1st one is paid of, you attack then next debt on your list. You do this until all debts are paid off.

     You should also read Dave Ramsey’s book – The Total Money Makeover. It will help you get focused on paying off your debts.

10. QUESTION:
    California Tax Form 540A – IRA and Student Loan Deductions?
    I am filing a California Form 540A for the 2009 tax year. I want to take a deduction for IRA contributions and student loan interest paid. On what line do I put these deductions? I have read and re-read the tax booklet but there is no information. Thanks!

    • ANSWER:
      That is because you report your Federal Adjusted Gross Income on line 13. Federal AGI already has these amounts deducted. You cannot deduct those items twice.

11. QUESTION:
    Isn’t it illegal for a bank to use and IRA account as collateral for a loan?
    Just making sure I know the laws
    Someone mentioned that the bank would let them use the IRA as collateral for a car loan.

    From all the reading I’ve done, a bank cannot under any circumstances do this.
    Could the teller or loan person just not know this?
    This is an “Am I wrong, or Am I right question”.
    Please enlighten me and edify me.
    Well, thats a bad move – isn’t it?
    You are essentially just liquidating your IRA.

    • ANSWER:
      Not exactly illegal, but according to the IRS, the part of the IRA that is pledged as collateral becomes taxable income:

      http://www.irs.gov/retirement/article/0,,id=162415,00.html

12. QUESTION:
    Must I pay the fee to the IRS for my deceased son’s loan against his IRA?
    My son borrowed against his IRA and died before paying any of it back. So when I had his taxes done for 2008 he was charged a penalty on the loan. Do I have to pay the fine?

    • ANSWER:
      My condolences on your loss.

      Aside from the fact that you cannot borrow from an IRA (unlike with a 401(k) which you can in some cases) so this was actually a distribution and not a loan, the estate is responsible for the payment of all taxes, penalties, interest and other debts. If the assets are not enough to pay off the debts, including anything due to the IRS, then they go unpaid.

      Exception: If anything is distributed from the estate before the debts are cleared, the person receiving those distributions IS liable for the debt, up to the amount improperly distributed from the estate. Any funds that remained in the IRA, plus any other assets such as bank accounts, cars, etc. must be used to settle the debts before they any remainder can be distributed to his heirs.

13. QUESTION:
    Can you use an IRA as collateral in order to get a loan from a credit union?
    Is it possible to use an IRA as collateral in order to get a loan from a credit union?

    Thank you.

    • ANSWER:
      In a word NO.

14. QUESTION:
    Can I withdraw money from an IRA and repay a 401k Loan without penalties.?
    The ira is my wife’s. The 401k that has a loan is mine. My theory is I can transfer assets from one place to another and free up my monthly cash flow. I might even get a tax write off for assets that have taken large dips and I am not really selling. I am transferring them.

    • ANSWER:

15. QUESTION:
    Should I pay off my student loan faster or invest that money in a IRA?
    I’m paying off a 34K student loan for 20 years@3.5%.My dad says that because of that low int. rate I should put that extra $ into a Trad.IRA.If I contribute 4000 per year I get Back approx. 1000 on state and fed returns every year.If my IRA averages 4.5% or better for 20 years is it smarter to follow dads advice or just pay the student loan as fast as possible?

    • ANSWER:
      I think your dad is giving you good advice. That is a pretty low interest rate on your loans and if you put money into an IRA your annualized returns over the next 20 years should be well above 3.5%.

      Another option to consider is to open a Rother IRA instead of a Traditional IRA. In a Traditional IRA you get the tax break now, but you have to pay ordinary income tax on your withdrawls in retirement. If you go with the Roth IRA, you don’t get a tax break now, but all of your withdrawls in retirement will be tax free. This is a good option if you expect to be in a higher tax bracket in the future than you are in right now. Also, I think they raised the contribution limit to 00 in 2008 for IRA’s (you can contribute no more than the limit between the 2 plans).

      Depending on how much extra money you are talking about you might be able to do contribute to the IRA and extra money to the student loan. I think maxing out the IRA makes more finanical sense, but there is a certain peace of mind that comes wtih paying off debt. I would try and max out the IRA first and then contribute a little extra to the loans (if you have extra income).

      I hope this helps.

16. QUESTION:
    can a person loan himself money from his IRA?
    I need to take money from my IRA,but do not want to withdraw it permanently. Is it possible to loan myself my own savings and replace it by making monthly payments

    • ANSWER:
      you’d have to check with the IRA administrator to see if that’s allowed – possibly – and there would be no penalty if it is allowed

17. QUESTION:
    How do you rollover a 401k into an IRA if there is a loan against the 401k?
    I just got laid off and I have to pay back k into my company 401k in a month.

    What are my options so I avoid the tax and penalties if I don’t pay on time? I heard I can rollover the difference into a rollover IRA. Is this true?

    • ANSWER:
      If you do not payback the loan, then unfortunately it will become a taxable distribution. This means that when you file your income taxes the outstanding loan balance will need to be included in your Gross Income. How this affects your return will depend on what tax bracket you fall into. Also, depending on your age, you may have to pay a 10% penalty on the distribution (,400).

      For more information, I would seek the opinion of a tax professional on your individual tax situation.

18. QUESTION:
    Should I pay off my student loan with my IRA?
    Is it worth it to cash out part of my retirement savings to pay off my student loan? The facts:
    1) I am 35 y/o and am recently seperated
    2) I have roughly 40 k in a rollover IRA account. After taxes and penalties I would net 58% of this amount to apply to the loan, which should just about pay it off.
    3) I have 24 k in student loans at 7.9% (I think the total cost of the loan is 36 k at maturity +/- – 120 more monthly payments).
    4) Right now I am adding about 3k/yr to another retirement acct (present balance 14k) – if I pay off the loan I could increase my annual contribution to this account to 10 k/yr.

    Does it make sense for me to A) cash out my IRA, pay off the student loan, and bump up my annual contributions immediately? or B) should I continue to pay the loan in installments, contribute 3k per annum to my retirement for the duration of the loan (up to 10k/yr thereafter), and let the 40k continue to grow tax free?

    • ANSWER:
      Don’t use your ira to pay off the student loan. Never use the ira for anything but being OLD. If you can pay an extra 10K to the ira if you pay off the student loan, then increas the student loan payment.
      Dont dip into the old age stuff.
      I think if you did the math you would find the 7.9% costs you more than what yuu earn on the IRA. That simply means you are doing a bad job at investing your IRA and not that it makes sense to use it to pay the student loan off.
      You are yuoung, you can make payments now.
      You will be old, you are very smart to have a retirement account. YOU probably know, time and compounding interest is why an IRA works, dont cut its time down.

19. QUESTION:
    should I consider paying off my car and college loan or start start investing into IRA’s?
    I’ve been earning some great commision checks however I’ve debating wheather to pay off my vehicle and student loans or starting investing or open a IRA and let it start to collect interest. Mainly just want to start investing into my childrens education. Please help

    • ANSWER:
      The debts will eat into your money over the long term, so they have to go. Put all your effort into getting rid of the car loan first, because the college loan is probably a more long term thing with a lower rate, and possibly could be deferred for a while.

      Once you have knocked the debts on the head, you can start paying money into investments. If you still have the debts hanging over your head when you start investing, you will be behind the eight ball, because the debts are costing you more than any earnings you get on investments (which are usually taxable earnings anyway).

      Put off investing for a while, at least until your car debt is gone.

      Best wishes

20. QUESTION:
    What are the rules for taking a loan from my IRA?
    How many loans can I take? Can the loans be concurrent?
    I am not yet 59.5 yrs old.
    What are the rules for repaying loans from my traditional IRA?

    • ANSWER:
      Rule # 1: You will get screwed on taxes.
      Rule # 2: You will be more screwed than you think on taxes.
      Rule # 3: Before doing something like that, consult with a CPA or tax advisor… that way you’ll know just how screwed you will be.

21. QUESTION:
    Is there a tax penalty for taking a 401K loan and investing it into an IRA?
    I am considering taking out a 401K loan to invest in an IRA in order to lower my adjusted gross income so that I may take the first home buyer tax credit that was introduced last month. Is there a tax penalty for doing this?

    • ANSWER:
      Only if the IRA stands for Irish Republican Army then not only will you have the Revenue service after you , Homeland Security will be showing up too.

22. QUESTION:
    loan from IRA to purchace a house?
    i have a 401k from previous job; i want to rollover to an IRA. However, i want to borrow some money from the 401K to buy a house. should i rollover then apply for the loan or should i apply for the loan while the money is still in the 401K account. thanks.

    • ANSWER:
      You cannot get a loan from an IRA. And, I doubt you can borrow from a 401k if you no longer work for that company.

      What you can do is a direct rollover of the 401k to an IRA. If the 401k is a traditional 401k, then roll it over to a traditional IRA. Then, you can take a distribution from the traditional IRA for a first-time home purchase without a penalty. You will, however, have to pay regular income tax on the distribution.

      If you roll over from a traditional 401k into a Roth, you have to pay taxes on the entire amount that was rolled over.

      If the 401k was a Roth 401k, you can withdraw your contributions, but not your earnings, without paying taxes or a penalty. Then, you can use it for whatever you want.

      Make sure you request a “direct rollover” so that the administrator of the 401k does not take withholding.

23. QUESTION:
    Are there benefits with IRA over 401k.Would it be wise to use 401 loan to fund IRA loan and payment are pretax

    • ANSWER:
      The first question is whether the IRA contribution will be deductible to you. In 2006, if your AGI exceeds ,000 (married) or ,000 (single), the deductible contribution to IRAs starts to phase out. Don’t do it if it isn’t deductible.

      Next, how fast can you pay back the loan? Generally, a long-term loan, even to yourself, is not going to help you because the interest is not deductible.

      Finally, would taking a 401(k) loan stop you from making 401(k) contributions? Don’t do anything that would stop that, and blow your employee match.

24. QUESTION:
    Is there a penalty for withdrawing from a Roth IRA to pay a student loan?
    I know there is usually a penalty for early withdrawal but isn’t that waived for education expenses?

    • ANSWER:
      There is no penalty exception for withdrawing funds to pay for a student loan.

      That being said, you would be able to withdraw a portion of your Roth IRA savings without paying taxes or penalties. With a ROTH, you can withdraw, without penalty, up to the dollar amount that you have contributed to the plan. Any earnings would be subject to taxes and penalties if withdrawn.

      Example:
      Let’s say you contributed ,000 over the years to a ROTH. That ,000 has grown to ,000. You would be able to withdraw up to ,000 penalty free… but if you were to withdraw more than the ,000, taxes + penalties would apply.

      Hope this helps!

25. QUESTION:
    Can you withdraw IRA funds early to pay student loan debt off?
    If I wanted to take money out of an IRA that was a rollover from a previous 401k to pay off student debt of my wife of 11 years in the amount of K, can I consider this an exception to the 10% additional tax rule? Thanks

    • ANSWER:

26. QUESTION:
    Should a Senior Citizen withdraw from an IRA to clear a HE Loan?
    The HE Loan Interest rate is 6.50 & the payments are 0.24
    a month. The balance on the HE Loan is about ,000.00.

    • ANSWER:
      The usual answer this is a simple NO!

      But you add factors to this problem. Senior Citizens generally are in a lower tax bracket. You can also safely take money from your IRA without penalties.

      So as the previous answer suggests, you need to really sit down and examine your situation. Is your money invested in a good fund, and are you making a decent return?

      What is your current financial situation? Are you having problems paying your bills?

      In your case, I would recommend talking to a retirement financial counselor.

27. QUESTION:
    Can I take any income deductions on an early withdrawl on my IRA for a defaulted business loan?

    • ANSWER:

      IRS does not care why you took an early withdrawal – they will tax any and all such.

28. QUESTION:
    Why do banks want my IRA amount in order to refinance a loan?
    I have never understood this. In order to refinance, banks ask for the amount of money I have in my IRA, yet I thought they couldn’t touch my retirement. So why do they want that??

    • ANSWER:
      IRAs & 401k are part of your net worth, which determines (at least part) of your ability to repay.

29. QUESTION:
    Can It take money out of my traditional IRA to pay off a student loan for tuition?
    Trying to avoid the penalty.
    Yes, but they are for higher education expenses. Is that an exception?

    • ANSWER:
      No.

      You will pay a penalty, and student loans usually have such a low rate, it is less than inflation. I would hang onto it as long as possible if it is low.

30. QUESTION:
    Can Sallie Mae dip into my retirement fund (roth ira) or investments to pay off student loan?
    If you don’t know what Sallie Mae is, don’t bother answering.

    • ANSWER:
      Generally, Sallie Mae cannot touch your retirement account or any other account. In the event of default of student loans, Sallie Mae and other lenders can sue to recover the loans. Some states protect retirement accounts from law suits such as Florida. That is why OJ lives there.

      Make sure you are current on the loans.

      If you are earning less on your investments than the interest on the loans, you may want to pay more toward eliminating the debt first.

31. QUESTION:
    IRA account , loan collateral ?
    My uncle is willing to loan me an amount of money however he does not want his wife to know so the only way I can actually obtain the loan is if we can use his IRA as collateral for a loan and repay back within 3 days, is this possible ? I am from NYC, I’m not sure how to proceed. Please advise if anyone have dealt with this type of procedures before. Thanks!

    • ANSWER:

32. QUESTION:
    would it be smart to fund a Roth IRA with a loan from my 401k?
    would it be smart to fund a Roth IRA with a loan from my 401k

    • ANSWER:
      Um… Maybe… Maybe not…

      What are the conditions of the Loan from your 401K?

      What are your investment options under your 401K, and do you foresee better returns under you Roth?

      Could you reduce the 401K withholdings and use the income to fund your Roth without paying a great deal more Taxes? Remember that your 401K allotment reduces your taxable income… Also, some employers match contributions, so you want to maximize that if it’s an option.

      I’m afraid I just don’t know enough to make an educated suggestion… And I’m not sure I would if I knew everything. It’s your future, and investing alwys has risks and gains, so there’s never a right answer without hindsight.

33. QUESTION:
    Should I use a home equity loan to fund an IRA?
    It would give me about a 00. more back on 2005 return.

    • ANSWER:
      Yeah, but wouldn’t it be counterproductive? Wouldn’t your home equity loan’s interest rate be more than your annual return on your IRA? Are you going to fund the IRA just to take the money out after tax time and pay back off the loan?

      If you did that, it would seem like you would just face the tax penalties in next year’s return. I’m still very new to IRAs and have little experience in the finance area. Investigate it and let us know what you find!

34. QUESTION:
    paying off auto loan thru my ira. account good or bad idea?
    unemployed and having problem with my mounthly payments.

    • ANSWER:
      You will pay taxes and a penalty of 10%. Is it a good idea to borrow money at 45% to pay off a loan? I don’t think so.

35. QUESTION:
    I’m paying back a 401 K loan.Can I roll over to another IRA?
    My employer started cutting back on their contributions to my 401K.So I want to change to a Roth or another IRA,however since I’m still paying back a loan cannot I not switch over without being penalized?

    • ANSWER:
      You must pay back the loan according to the loan terms, or it becomes a taxable early withdrawal and a 10% penalty also applies.

      You can always start an IRA if your income level so permits. You generally CANNOT roll over an existing 401(k) account into an IRA while you are still with the employer. Get the loan paid back before you do anything else – that’s your highest priority.

36. QUESTION:
    Tax filing, my student loan, and my Roth IRA?
    Hi all…i was hoping maybe someone relatively qualified could assist me with this. I think I’m ready to file my taxes for this year and have a couple questions before I do so…

    1. I have a student loan out…I hear that the annual interest paid on the loan can be deducted from your taxes. Is that correct? If so, can it be done more than 1 year? (meaning if I have the loan out for 5 years, can I deduct the interest paid every year of those 5 years?)

    2. I have a Roth IRA and am curious whether that has to be counted into my tax filing in anyway? I don’t believe so, but I’m not positive.

    Thanks much,
    CT

    • ANSWER:
      Student Loan interest is an adjustment to income taken on page 1 of form 1040. The are income limits to determine if it is deductible. If your income exceeds 50,000 per year you will lose the deduction. The amount of interest deductible in any one year is up to 2,500. See Instructions to form 1040 or Internal Revenue Code Section 221.

      Roth IRA’s are not counted in your tax return. There is no deduction for making the contribution, unlike in a “Traditional IRA” where you do get a tax deduction. The benefits of a Roth are many, but you need to consider your age, income level, and projected rate of return to see if they make more sense than a traditional.
      Roth IRA’s need to be in place for 5 years (From memory) before the withdrawals are tax free. The account grows without having to pay taxes and all of the withdrawals would then be tax free. The really nice part about them is that they are not subject to required minimum withdrawals. They are also not subject to Income in respect to a decedent. (IRD). This is a complicated point and you’ll be dead, your beneficiaries will have to worry about this, so you don’t have to. Ask your lawyer about it when drawing your will up!

37. QUESTION:
    Pay Down Student Loan vs Roth IRA?
    I am 28 years old. I have ,000 in student loans, ,000 @ 6.5% and ,000 @ 7.8%. I just opened a Roth IRA. Is it more beneficial for me to pay extra on my student loans or put my extra monthly income in the IRA?

    • ANSWER:
      You should try to lock in a lower rate on your student loans. I have 30K in student loans at 2% interest. I dont think you will get a return on a roth IRA that will be above 8% these days so I would suggest doing both. Put money in the IRA and pay down the student loans.

38. QUESTION:
    loan repayments vs. taking an Roth IRA?
    hi,
    last year i took out my first roth IRA, at the maximum. i want to do it again for this current year, but i am in graduate school and have a lot of college loans. is it a bad idea to take out this year’s IRA with a loan? i have heard that you can never catch up if you don’t deposit some years.

    • ANSWER:
      If you are an immigrant and are planning to go back, then you may want to take it out, coz becoming debt free should be your primary goal. But if you are a citizen, a greencard holder or planning to continue to stay here. Please leave it there. Its very great that you have started with your IRA fund. I would not take it out.

39. QUESTION:
    I pay 0 to my Roth IRA every mo. I will be a FT student soon and may need a loan. Do I pause the Roth IRA?
    Should I pause my automatic Roth IRA contributions in order to minimize the amount of student loans I may need?

    • ANSWER:
      My advice is to keep contributing to the Roth IRA as long as you have enough earned income to qualify. One reason is that the federal government will contribute a one to one match up to ,000 if you qualify. That is a better return than you are going to get from minimizing the student loan debt. It is called the Retirement Savings Contributions Credit, and I have included a link (below) to the IRS website for more information on this subject.

      Another reason is that the future value of your Roth IRA is going to be considerably greater than the total cost of credit for your student loans. Getting a few extra years’ early start on a Roth IRA is a huge benefit.

      A third reason is that you can withdraw all or part of your contributions to your Roth IRA without paying tax or penalty. And, if you need to withdraw the earnings, also, you can withdraw those without penalty if you use the funds to pay for qualified higher education expense.

      At 0 per month, you are contributing ,600 per year to your Roth IRA. You need to have only ,600 in earned income in order to qualify to make that contribution. You receive other tax benefits for your student loan and you have considerable flexibility for repaying that loan.

      For all these reasons, I think you would be far better off continuing with your monthly Roth IRA contributions. Congratulations on starting your retirement savings so early! Good job.

40. QUESTION:
    am i allowed to make an early withdrawl from a roth IRA to make payments on a student loan?

    • ANSWER:
      not without heavy financial penalty

41. QUESTION:
    The bank took my money cause I didn’t pay a loan. Can they take my Daugther Education IRA $ If I don’t pay?
    So yea take took my checking, Savings. Now my account is 0. Which wasn’t much anyways. Was surprised they didn’t take heir’s? My main is concern is can they take my Daughter IRA education account that I pay month to month too, if I don’t pay the personal loan I owe them? The IRA account is under her name, but I’m Responsible Individual on the account. Any help Plz?

    • ANSWER:
      I am not a lawyer or a banker, so I’m not certain about this, but I think that if your daughter is the primary account holder, they probably cannot take that for debts you owe. Even if you are the custodian with access to the account, I think that is legally considered her money. In fact, I’ve heard that it is illegal for a custodial parent to take money from an account like that and use it for anything other than something specifically for the child (like education, piano lessons, etc.). So my understanding of an account like that is that it’s her money, not yours, so the bank probably can’t take it to satisfy a debt of yours (and you can’t take it to pay off debts or buy something for yourself either).

42. QUESTION:
    Loan or IRA to help child’s college?
    No one seems to be able to answer this question well, I even called student aid advisors on this.
    I am debating whether to take a loan up to 5,000k over two years to help finance my child’s final two years in college, but also have a Roth IRA of my own that I could use. The concern for me is I will eventually have two more children going to college, so do not to ruin an good credit rating because of a 5,000 loan, in case I ever need to help the other two children some. Using the Roth will avoid a credit rating hit, but I read it is not wise to use as it is for retirement. Anyone been through this before? Any insight appreciated.

    • ANSWER:
      Retirement plans are for retirement. Once you withdraw the funds, they can never be replaced.. You should never tap them unless you have more put away than you’ll ever need.

      Taking money from an IRA may subject you to penalty and tax. I would borrow. The IRA remain available if you ever get that desperate that you need to sabotage your own retirement.

43. QUESTION:
    Short term loan from IRA?
    I have a somewhat complicated question. After some difficulties with getting a mortgage on a house the broker and lender have offered one last solution. They say I should take a short-term loan from my IRA, use the money for the down payment, I’ll receive the original down payment money back at closing then I can repay the IRA within 60 days time.

    My concerns are these:
    1) I took a smaller distribution from the account earlier this year to stash away some money for moving costs. It was a regular distribution and I’ve incurred the usual penalties.

    2) Will the bank withhold any of the money? They took out 10% on the distribution, will they likewise do so even though this is technically considered a “rollover”?

    3) Will I run into any problems because the money is being used as a down payment on a house? I’ve heard that might be an issue.

    4) Is there anything else I should be particularly concerned about?

    I’m incredibly nervous about doing this and I want to make sure I’m not going to get trounced at tax time.

    • ANSWER:

44. QUESTION:
    Pay off loan out of 401K or IRA?
    I have a personal line of credit through my bank,it is 6K should i pay it off out of my 401K or IRA?
    I know I’d pay taxes and penalties if I do, but would it be worth it to pay off the line of credit?

    • ANSWER:
      Do not touch retirement accounts. The smarter way would be to stop contributing to them and use that money to pay down (and eventually off) your line of credit. Once you’re out of debt, resume contributing to retirement funds.

45. QUESTION:
    Can I Move 401k to IRA and take Loan for First Time Home Purchase?
    First I’ll have to give you some history. Over my career, I have frequently moved to different companies and I have moved my 401k several times. I now have 2 401k plans and a simple IRA plan. I have just started working in a new position but at none of the companies. I have approximately ,000 in one 401k, and ,000 in the other two. I don’t own a home and I am now looking to buy my first one. My girlfriend has a lot of equity from the sale of her house. We are both 40 years old.
    I have only ,000 in available cash in the bank.
    We have recently moved to a much more affordable region and I can now afford a mortgage but won’t have savings for deposit for another 6-10 months or so. I would like to go in equally with my girlfriend or figure a way where we can share in equity. So I have several questions:
    1.What’s a good method that my girlfriend and I can work fairly with her greater equity?

    Like most people I am not thrilled by my 401k returns lately. I would like to move them to a self-directed IRA where I have more choices on investments. I am reading that index funds are best to minimize fees but I’d also like to be able to choose individual stocks and funds.
    2. Where can I do this? Will I lose out on 401k advantages?

    I have also been thinking of taking a loan on my 401k or using moneys for first time buyer – I can’t do this since I no longer work for the companies.

    3.Can I do this in an IRA? In other words can I transfer my money to an IRA and then take loan from there?
    4.Will a loan officer give us a loan if I have ,000 from a 401k (IRA) first time buyer loan and only ,000 cash funds?

    Thanks for your help

    • ANSWER:
      A couple of points in response:

      You can take your old 401ks from previous employers and roll them over into an IRA. The IRA can be at a financial institution that allows individual stocks, ETFs, funds, etc., which considerably broadens your choices. (For example, you can set it up at a broker like T.D. Ameritrade.)

      Index funds give you the broadest diversification with the lowest fees. Individual stocks give you the least diversification. WIth only k I’d just leave it in indexes or in broad ETFs, but if you want to take a flyer on a stock or two, try to experiment first with a small percentage of that money.

      You may be able to arrange cash from your IRA — there are some special rules for first-time home buyers — but since you asked, I’d recommend either of these instead: (1) Just wait and accumulate more cash. It’ll be good practice for saving in the future. (2) Since your girlfriend has spare cash, split the down payment with her by signing a real official loan note to her for half, including a reasonable interest rate, and then also split the payments. And — do I need to say this? — pay the damn note back on time. That way you two are really 50-50 on the investment and there won’t be any odd math or disputes.

46. QUESTION:
    Should I begin Roth IRA with student loan?
    What I was thinking was when I go back to college, take out a student loan for ,000 or so and invest it into a Roth IRA and let it sit for 3 years. Assuming that I’ll be receiving an average of a 10% return, in that 3 years, the total would have accumulated to around ,500. Being as I would be in college, I wouldn’t have to pay interest on the loan until after 3 years later when I graduate.

    After 3 years, I can take out that initial ,000 plus a few hundred to cover the interest from the loan and pay off my loan entirely right away. Assuming that, that would leave me with anywhere from 00-00 to sit in my Roth IRA.

    I was wondering if this is a feasible. I’ve asked around and explained the situation and everybody agrees that it can work, but I would prefer an expert opinion. Thanks.

    • ANSWER:
      Shhhhh!

      With the unusual current interest rate environment, EVERYBODY is doing something like that! Not with an IRA or Roth IRA because you’d pay huge penalties, but you can put it in a High-Yield Savings account and earn 4-5%. Don’t make too much noise or someone will pass a law against it!

      Congratulations on having more math smarts than the average bear, Boo-boo!

47. QUESTION:
    I’m 76 & still working. Should I take out ,000 from an IRA & clear this H E Loan?
    My payments are 0.24 a month…..Would the Tax on this withdrawal be better for me financially than the 6.50% interest on the loan?

    • ANSWER:
      You should retire and live the rest of your life happily. That is slave work to have to make you work at 76. For the sake of your life, please retire.

48. QUESTION:
    Should I cash out my Roth IRA for student loan payoff?
    I started a Roth IRA last year (2008) with ,000. However, I have 8 student loans reporting and have since decided that I would feel more comfortable paying off 2 of those students loans (approx. ,000) with that money.

    Since the current value of my IRA is ,300 because of the market, I would be able to withdraw that tax free correct? Also, would I still have to pay the 10% early withdrawal penalty or not? Wouldn’t it be considered a qualified higher education expense?

    Thanks for the help and advice.

    • ANSWER:
      You could just wait for another year on deferment on the student loans. That would be cheaper I believe in interest then to take the penalty of the ira. If you wait a year the market should rebound and then your portfolio should be worth more.

49. QUESTION:
    i have a company in partnership with someone. How can i secure a loan aginst a IRA or some other plan ?

    • ANSWER:
      The short answer is that you cannot secure a loan with an IRA (see reference below).

      The same protection is provided for IRA funds in the case of bankruptcy. It makes sense, though, if you think about it. The government prohibits you from pledging your IRA assets and then, subsequently protects them in bankruptcy. This helps to ensure that if you were smart enough to save for retirement then those funds will still be intact when you need them*.

      *Intact, that is, unless you cash in your IRA, claim it as ordinary taxable income and pay the additional 10% IRS penalty for premature withdrawal.

      P.S. I’m not sure what you mean by “some other plan”.

50. QUESTION:
    Can I take a 50K loan out against my IRA for another investment and repay it before I get hit with taxes?

    • ANSWER:
      You may NOT borrow against retirement funds or pledge them as collateral, sorry. The only way you can do this is if you take the early distribution and replace it within the required time frame, however you’ll still owe the 10% tax penalty for the early withdrawal. There are two exceptions though…you may/might be able to borrow against it for your 1st home…notice that it says 1st; you may/might also be able to borrow or withdraw tax free if you’ve health issues (you said investment so that’s clearly not the case here).