Some types of retirement accounts let you borrow money from the account without a tax penalty, as long as you pay the loan back within a specified period. Individual retirement accounts have no such loan provision. If you want to use the money in your IRA, you'll have to make a withdrawal, which might result in income taxes and early withdrawal penalties. You can avoid the taxes and penalties if you roll over the withdrawal within 60 days.
Any money you withdraw from your traditional IRA is taxed as ordinary income at your income tax rate. If you take money out before you turn 59 1/2 years of age, you'll also get hit with an early withdrawal penalty equal to 10 percent of the amount withdrawn. If your need is short-term -- 60 days or less -- you can withdraw money from your traditional IRA and either deposit it back into your original IRA or use the money to open an IRA with a new custodian. As long as the money is returned to a traditional IRA, you won't be liable for taxes or penalties.
Money you've contributed to a retirement account, such as a traditional IRA, should be long-term money. It is intended to get you through your retirement years, which is one reason the Internal Revenue Service imposes a penalty for early withdrawals. If you have access to other funds, you are probably better off using them rather than withdrawing money from your retirement account. The 60-day rollover rule gives you some flexibility with your money, but once you've done a rollover, you have to wait at least 12 months before you can do it again.
The rules that apply to a traditional IRA also apply to a Roth IRA, with a few exceptions. One big difference is how your contributions are taxed. Since contributions to your Roth IRA must be made with after-tax dollars, you can withdraw an amount equal to your total contributions at any time, for any reason, without incurring either a tax liability or a tax penalty. And you don't have to roll those funds over within 60 days -- or ever.
The nonqualified earnings portion of your Roth IRA is subject to the same tax rules as a traditional IRA. If you take a withdrawal of the earnings in your Roth account before they become qualified, that money is subject to ordinary income taxes and the 10 percent tax penalty, unless you roll those funds back into a Roth IRA within 60 days. Once your Roth becomes qualified, typically after you've had the account for five years and you've turned age 59 1/2, you can withdraw the earnings tax free without ever having to roll them over.
Mike Parker is a full-time writer, publisher and independent businessman. His background includes a career as an investments broker with such NYSE member firms as Edward Jones & Company, AG Edwards & Sons and Dean Witter. He helped launch DiscoverCard as one of the company's first merchant sales reps.