How to Borrow against Your IRA Account
Borrowing against your IRA is a decision to be made carefully while considering all the advantages and disadvantages. In challenging economic times, it may be necessary to borrow money from your retirement in order to avoid a hardship that may result if action is not taken. In order to make this decision, there are six simple steps you can take to do what's best for your current situation and your future. All you will need for this process is computer access, a telephone, and the steps provided below.
Step 1- Research Your Options
It is important to first speak with the company you have your IRA through to inquire about the guidelines regarding borrowing from your account. Most IRA or retirement accounts will charge interest to the money you borrow. After assessing this interest rate, you will be able to research other loan options to see if lower rates are available to you. It is also suggested you inquire about the length of time for the loan, what your payment plan will be, how many loans may be taken from this account over the life of the account, and whether your payments will be deducted from your pay check or come as a monthly statement. Keep in mind that after you have borrowed this money, it will affect the rate at which your retirement grows until the loan has been paid in full.
Step 2- Look at the Advantages
Typically, taking a loan from your IRA is more advantageous than withdrawing from your account because you will not be subject to the same costly penalties since you are borrowing from yourself. The process of borrowing from your IRA requires less time allowing you access to money faster since the money borrowed is yours.
Step 3- Assessing the Disadvantages
Just as there are advantages, there are also disadvantages in borrowing from your IRA. One of the disadvantages is the money you withdraw will slow the growth of your retirement since it is not physically in the account. Another important factor to consider is what would happen if you were to leave your job, is your IRA portable? If you are unable to pay this money back after changing jobs, you may be subject to the 10 percent withdrawl penalty and the money will be taxed. Lastly, take into consideration that the money withdrawn will affect the amount of income you bring home since it is an additional monthly payment.
Step 4- How Much Money Do You Need
After researching your loan options and evaluating the advantages and disadvantage, sit down and figure out how much money you will need to address the issue at hand. The goal is to borrow only what is necessary to minimize the amount of money you withdraw, therefore leaving maximal money for growth.
Step 5- Speaking with Human Resources
After deciding you want to borrow from your IRA and figuring out the dollar amount needed, you will be ready to speak with the Human Resources department at your job. You will need to inquire about whether or not this will have any impact on their contributions to your retirement, if there is any paperwork they require you to fill out, and if your loan payments can be directly debited from your pay check.
Step 6- Applying for the Loan
Now you are ready to speak with the company you have your IRA through and start the loan process. Many companies offer this application online or over the phone with a representative. You also have the ability to look at your institution online to find out what information is necessary in order to complete the application process. This process is typically not too lengthy, at most ten days, and you may have the option to receive your funds through direct deposit.