Many retirement savers are surprised to learn that 401k plans and Solo 401k plans sometimes allow loans, but IRAs do not. The IRS does not permit an IRA loan under any circumstances.
That doesn’t mean you have zero access to your IRA funds in the short term. There are a few limited ways to tap your IRA, but they aren’t true loans and they come with strict rules. The most common example is a 60-day rollover, where you withdraw funds and redeposit them into an IRA within 60 days to avoid taxes and penalties.
The Roth IRA Handbook
Everything you need to know about investing and optimizing your wealth with a Roth IRA
By contrast, 401k loans have more defined guidelines. The maximum loan is the lesser of $50,000 or 50% of your vested account balance, and repayment requires interest at a rate similar to commercial loans. This is often based on the bank prime rate plus a small margin. However, these rules apply only if the plan provider actually offers loans.
Since borrowing from an IRA isn’t permitted, it’s worth looking at alternatives that can help you bridge a financial gap. Here are four options to consider instead of a non-existent IRA loan.
Option #1: Make an Early Withdrawal
With an IRA, you can start taking penalty-free distributions once you reach age 59½. Before that age, withdrawals from a traditional IRA are usually taxed as ordinary income and may also trigger a 10% early withdrawal penalty unless you qualify for an exception.
Since loans aren’t an option, one way to access funds is to take an early withdrawal and accept the taxes and penalties that come with it.
- Traditional IRA: Withdrawals before age 59½ are taxable as income and typically carry a 10% penalty.
- Roth IRA: Qualified withdrawals are tax- and penalty-free if the account has been open at least five years and you’re over 59½. Non-qualified withdrawals may be subject to both taxes and penalties.
Taking money out means you won’t have to repay it, but you’ll lose the benefit of tax-advantaged growth.
✏️ Hypothetical Example:
If you withdraw $10,000 early from a traditional IRA, you may owe $1,000 as a penalty plus income tax on the full $10,000. The exact tax bill depends on your bracket at the time of withdrawal, which can make this option costly.
📌 Also read: Roth vs Traditional IRA
Option #2: Withdraw Contributions From a Roth IRA
Roth IRAs have a unique feature that no other retirement plan provides. You can withdraw the money you contributed at any age, without taxes or penalties. This works because Roth contributions are made with after-tax dollars.
✏️ Hypothetical Example:
If you’ve contributed $10,000 to your Roth IRA, you can take out up to that $10,000 anytime, tax- and penalty-free.
The rules are different for investment earnings. Earnings are only tax- and penalty-free if the withdrawal is qualified. That means you must be at least 59½ (or meet another qualifying event), and your first Roth contribution must have been made at least five tax years earlier (the 5-year rule).
Under the IRS ordering rules, contributions come out first. So, you could withdraw your $10,000 contribution without tax consequences. But if you also pulled out $90,000 in earnings before meeting the qualified distribution rules, that portion would typically be taxable and could face the 10% penalty.
Option #3: Do a 60-Day Rollover
A rollover is the process of moving retirement funds from one account to another. There are two ways to do it:
- Direct rollover: Money is sent directly from one custodian to another. You never touch the funds.
- Indirect rollover (60-day rollover): Money is distributed to you first, and you have 60 days to redeposit the full amount into an eligible retirement account.
Some people view the 60-day rollover as short-term access to IRA funds. You receive the money (often by check), and as long as you return the full amount within 60 days, it’s not treated as a taxable event.
Key points about 60-day rollovers:
✅ You can use the funds however you like during the 60 days.
✅ Missing the deadline means the withdrawal is taxable, and if you’re under 59½, it may also face a 10% penalty.
✅ This option is the closest alternative to borrowing from your IRA, but it is not a loan.
✅ The IRS doesn’t charge fees, though custodians may charge administrative processing fees.
If you’re confident you can redeposit within 60 days, this approach can work as temporary access to money. But the risk of missing the deadline makes it important to proceed cautiously.
Withholding on IRA Distributions
When IRA funds are paid directly to you, the IRS requires default federal income tax withholding of 10% on nonperiodic payments—unless you opt out or select a different rate.
Important details about withholding:
✅ Withholding is a prepayment of income tax, not an additional penalty.
✅ If you miss the 60-day deadline, the entire distribution becomes taxable, and you may also face the 10% early withdrawal penalty if under 59½.
✅ If you complete the rollover, you must still deposit the full gross amount, including the portion withheld. The withheld amount is later credited on your tax return.
✏️ Hypothetical Example:
Suppose you take a $20,000 IRA distribution. Unless you opt out, $2,000 (10%) is withheld and you receive $18,000. To avoid taxes and penalties, you still need to redeposit the full $20,000 within 60 days—even though you only received $18,000. You’d need to supply the extra $2,000 from another source.
📝 Note: The “once-per-12-month” rule applies to IRA-to-IRA 60-day rollovers. The limit is combined across all your IRAs. However, this rule does not apply to rollovers between IRAs and employer plans, or to direct trustee-to-trustee transfers.
Option #4: Rollover to a Solo 401k and Take Out a Loan
You cannot roll a Roth IRA into a Solo 401k. However, a traditional IRA can be rolled into a Solo 401k if the plan accepts it. When done correctly, the rollover is tax-free and penalty-free.
A Solo 401k (also called a one-participant 401k) is designed for self-employed individuals or business owners with no employees other than a spouse. If you hire common-law employees, the “solo” structure no longer applies.
Beyond rollover flexibility, a Solo 401k comes with much higher contribution limits compared to an IRA:
Contribution limits in 2025
- Solo 401k: Up to $70,000 (or $77,500 if age 50+, including the $7,500 catch-up).
- IRA: $7,000 (or $8,000 if age 50+).
Additional Solo 401k features
- Roth salary deferrals up to $23,500 in 2025 ($31,000 with catch-up if age 50+).
- Many plans offer participant-directed investing, which means you can manage investments directly.
The key advantage here is loan access. If your Solo 401k provider makes loans available, rolling over your traditional IRA to a Solo 401k could give you the ability to borrow from your account.
How Much Can You Borrow From a Solo 401k?
- The maximum loan is the lesser of $50,000 or 50% of your vested account balance (reduced if you had another plan loan in the past year).
- Plans must charge a reasonable interest rate, often based on prime plus a small margin.
- Repayment is usually required within five years, with substantially level payments made at least quarterly.
- Loans used for a primary residence may qualify for longer repayment, though the exact term depends on the plan’s rules.
Unlike a 60-day rollover, which only gives you temporary access for two months, a Solo 401k loan gives you a longer repayment period.
📝 Note: Solo 401k loans do not involve mandatory tax withholding. You borrow the funds and repay them under your plan’s terms, which can make this option more flexible than using a 60-day rollover.
Wrapping Up
An IRA doesn’t allow loans, but that doesn’t mean you’re without options. The strategies available each come with trade-offs, so the best choice often depends on how long you need the funds and how comfortable you are with the rules involved.
If you only need temporary access, a 60-day rollover can work—but missing the deadline triggers taxes and potential penalties. For longer repayment flexibility, rolling over a traditional IRA to a Solo 401k and using a plan loan could be worth considering if you qualify.
The most important step is weighing short-term needs against the long-term impact on your retirement savings.
📌 Also read: How to Set Up A Solo 401k Plan
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