The Dangers of Using Your IRA for Immediate Expenses

Michael Anicito |

Sometimes financial burdens can be overwhelming for an individual or family. There may be times when the only option seems like making a withdrawal from your Individual Retirement Account (IRA). Some qualified retirement accounts such as a 401(k) plan may allow for loans from the plan that are not taxable as long as they are repaid by the account owner. However an IRA does not have provision for loans. You are allowed to withdraw from an IRA without consequence as long as you repay the funds within the 60 period. However, this can be a dangerous risk you take if you are waiting for funds to come to you or just human error occurs without your knowledge.

If you take funds from a qualified plan, like an IRA, there may be tax consequences. If the funds are withdrawn from a Traditional IRA, the withdrawal is added to your ordinary income. If you are younger than 59 ½ at the time of the withdrawal, then there may be an additional 10% penalty. The IRS does allow for certain withdrawals that can avoid the 10% penalty. Some of these exceptions include education expenses, medical expenses, and for a first time home purchase. Other exceptions are available. (Source: – Exceptions to Tax on Early Distributions).

Before taking an IRA distribution consult with your financial planner and tax advisers to ensure that a proper review of all of your options are considered. Other financial avenues may be available to you that offer a better solution than taking an IRA withdrawal.

Michael Anicito, CFP®
Inspire Investment Solutions, LLC - President