Here's Why You Actually CAN'T Borrow From Your IRA (And What to Do Instead)

Lots of people think IRAs work like 401(k)s—you can tap into them whenever you need cash. Nope. That’s the biggest misconception about retirement accounts.

Here’s the reality: IRAs don’t have a loan option. Period. Any money you pull out = distribution, not loan. And distributions hit different depending on your account type:

Traditional IRA withdrawal before 59½? You’re looking at:

• Income tax on the full amount
• 10% penalty on top
• Example: Pull $10k early → pay ~$3,200 in taxes + penalties if you’re in the 22% tax bracket

Roth IRA? More flexible—you can pull contributions anytime tax-free. But touch the earnings early? Same penalties apply.

The real killer: Lost compound growth. $10k withdrawn now could’ve been $50k+ in 20 years. That opportunity cost is brutal.

Got exceptions? Yeah:

• First-time home buy (max $10k lifetime)
• Medical expenses over AGI threshold
• Disability or higher ed costs
• Substantially equal periodic payments (SEPPs)

But these still don’t dodge the income tax—only the 10% penalty.

Better moves: Personal loan, HELOC, 401(k) loan (if available), or the risky 60-day IRA rollover. Anything beats raiding your retirement stash early.

Bottom line: IRAs are for retirement, not emergencies. Keep your hands off until 59½, or have a very good reason + a financial advisor in your corner.