How to Borrow From an IRA Without Penalty: Rollovers and Exceptions

You cannot borrow from an IRA the way you can from a 401(k). Federal law treats a direct loan between you and your IRA as a prohibited transaction that disqualifies the entire account. The closest legitimate workaround is the 60-day rollover, which lets you hold distributed funds for up to 60 calendar days before redepositing them tax-free. Beyond that, the way to get money out of an IRA without penalty is to fit your withdrawal into one of the specific exceptions Congress has written into the tax code — medical expenses, higher education, a first home, disability, birth or adoption, and several newer categories added by the SECURE 2.0 Act.

Why a True IRA Loan Is Off the Table

Lending money between an IRA and its owner is a prohibited transaction under federal law.¹ Writing yourself a loan from the account, or pledging IRA assets as collateral for a personal loan, blows up the account. It stops being an IRA as of the first day of that tax year, and the full fair market value of everything inside is treated as a taxable distribution to you.² If you are under 59½, the 10% early withdrawal penalty applies on top of the income tax.³

So the question becomes: how do you get to the cash without triggering that penalty? Two paths exist. The first is a short-term withdrawal you plan to put back. The second is a permanent withdrawal that qualifies for a statutory exception.

The 60-Day Rollover: The Only Short-Term Access

You can request a distribution from your IRA, take the cash, and use it for anything for up to 60 calendar days. If you redeposit the full amount into the same or another eligible retirement account within that window, the IRS treats it as a non-taxable rollover, not a withdrawal.⁴ Miss the deadline and the whole amount becomes taxable, with the 10% penalty added if you are under 59½.⁵

Three things trip people up.

One Rollover Per 12 Months

You get one indirect rollover across all of your IRAs in any 12-month period. The IRS aggregates traditional, Roth, SEP, and SIMPLE IRAs for this purpose, and the clock starts on the date you received the distribution, not the date you redeposit. A second indirect rollover inside that window is immediately taxable and can generate excess contribution penalties if you try to put it back. Direct trustee-to-trustee transfers are unlimited and do not count against this cap.⁶

The Withholding Trap

When your custodian cuts you a check, the default federal withholding is 10%. You can change that rate or opt out entirely with Form W-4R filed before the distribution.⁷ Here is the trap: to complete a fully tax-free rollover, you have to redeposit the gross amount, including whatever was withheld. If $1,000 gets withheld from a $10,000 distribution, you need to find that $1,000 elsewhere and put back the full $10,000. Any shortfall is a permanent, taxable withdrawal.⁶

Self-Certification if You Miss the Deadline

If circumstances beyond your control blew the 60-day window, you may be able to self-certify your way to a waiver instead of paying for a private letter ruling. The IRS accepts a written certification to the receiving custodian when the delay was caused by one of the listed reasons: a financial institution error, a misplaced check, severe damage to your home, serious illness or death in the family, incarceration, or a postal error, among others. You must complete the rollover as soon as the obstacle clears, and the IRS treats a redeposit within 30 days after that as timely.⁸

Penalty-Free Withdrawal Exceptions

If you cannot put the money back within 60 days, the way to avoid the 10% penalty is to fit the withdrawal into a statutory exception. Income tax still applies to traditional IRA distributions in almost every case below; the exception only wipes out the extra 10%. Each applies to traditional, SEP, and SIMPLE IRAs unless noted.

First-Time Home Purchase

Up to $10,000 over your lifetime for buying, building, or rebuilding a first home for yourself, your spouse, your child, or your grandchild.⁵ “First-time” means you (or your spouse) have not owned a principal residence in the two years before the purchase. The cap is not indexed to inflation.

Qualified Higher Education Expenses

Tuition, fees, books, supplies, and room and board at an eligible post-secondary institution qualify when the student is enrolled at least half-time. Expenses can be for you, your spouse, your children, or your grandchildren. This exception is IRA-only; 401(k) plans do not offer it.⁵

Unreimbursed Medical Expenses

You can withdraw penalty-free to cover medical costs exceeding 7.5% of your adjusted gross income for the year, whether or not you itemize. Only the amount above the threshold qualifies. If your AGI is $80,000 and you have $10,000 in unreimbursed medical costs, the penalty-free amount is $4,000: $10,000 minus $6,000 (7.5% of $80,000).⁹

Health Insurance Premiums While Unemployed

If you have received unemployment compensation for at least 12 weeks, you can pay health insurance premiums from your IRA without the penalty. The withdrawal must happen during the year you got unemployment or the following year, and it cannot exceed premiums actually paid. IRA-only.⁵

Total and Permanent Disability

If you become totally and permanently disabled, you can take distributions at any age without the penalty. The withdrawal is still reportable as income.¹⁰

Birth or Adoption

Each parent can withdraw up to $5,000 per child penalty-free within one year of the birth or the date a legal adoption is finalized. An eligible adopted child must be under 18 or physically or mentally unable to self-support. You may repay the distribution to your IRA at any time, and the repayment is treated as a tax-free rollover.¹¹

Substantially Equal Periodic Payments (Rule 72(t))

If nothing else fits, you can set up a schedule of substantially equal periodic payments based on your life expectancy. The payments must continue for at least five years or until you reach 59½, whichever is longer. Modifying the schedule before that point — stopping payments, changing the amount, or taking an extra withdrawal from the same account — triggers a recapture tax on all the earlier penalty-free distributions. This is a tool for steady multi-year income, not a lump sum.¹²

New Categories Under SECURE 2.0

The SECURE 2.0 Act added several penalty-free withdrawal categories for distributions taken after December 31, 2023.

Emergency Personal Expenses

One penalty-free distribution per calendar year for an unforeseeable personal or family emergency, limited to the lesser of $1,000 or the vested balance above $1,000. You have three years to repay it. If you do not repay, you cannot take another emergency distribution until those three years pass.⁵

Domestic Abuse Victims

A victim of domestic abuse by a spouse or domestic partner can withdraw up to the lesser of $10,000 (indexed) or 50% of the vested balance without the penalty.⁵ You self-certify eligibility in writing to the custodian; no court order or police report is required.¹³ The distribution must be taken within one year of the abuse. Any portion can be repaid within three years, treated as a tax-free rollover.

Federally Declared Disasters

If you sustained an economic loss because of a federally declared disaster where you live, you can withdraw up to $22,000 penalty-free. The taxable income can be spread evenly across three years, and you have three years from the distribution date to repay any of it into a retirement account.⁵¹⁴

Roth IRA Contributions: A Simpler Route

If you have a Roth IRA, your original contributions are already accessible. Because those dollars went in after tax, you can pull them back out at any age, for any reason, with no income tax and no 10% penalty.¹¹ IRS ordering rules treat every Roth distribution as coming from contributions first, conversions second, and earnings last.

The rules tighten once you get past contributions and into earnings. Earnings taken before 59½ are generally subject to income tax and the 10% penalty unless an exception applies, and earnings are only fully tax-free after the account has been open for at least five tax years. The five-year clock runs from January 1 of the tax year for which your first Roth contribution was made, so a 2025-year contribution made in April 2026 still starts the clock on January 1, 2025. Keep records of your total contributions so you know where the line sits.¹¹

Watch Out for SIMPLE IRAs in the First Two Years

SEP IRAs follow the same withdrawal rules and exceptions as traditional IRAs. The 401(k) age-55 separation-from-service exception does not apply to any IRA.⁵

SIMPLE IRAs carry a steeper penalty during your first two years in the plan. An early distribution within two years of first participating triggers a 25% additional tax, not 10%. During that same window, you can only transfer SIMPLE IRA funds to another SIMPLE IRA; moving them to a traditional IRA or other account triggers the 25% penalty unless an exception applies. After two years, the standard 10% rules and exceptions take over.¹⁵

Claiming the Exception on Your Return

Fitting an exception is not automatic. Your custodian will issue Form 1099-R by January 31 of the following year showing the gross distribution and a distribution code. To actually get the 10% waived, file Form 5329 with your return and enter the numbered exception code for your circumstance.⁹ If you have nondeductible contributions in a traditional IRA, or you are reporting a Roth distribution, Form 8606 calculates the taxable portion.¹⁶ Electing out of the default 10% withholding on the way out does not eliminate the income tax — it just shifts the payment to when you file, so hold enough back to cover it.

1
Office of the Law Revision Counsel. 26 U.S. Code 4975 – Tax on Prohibited Transactions
2
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
3
Internal Revenue Service. Retirement Topics – Prohibited Transactions
4
Office of the Law Revision Counsel. 26 U.S.C. 408 – Individual Retirement Accounts
5
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
6
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
7
Internal Revenue Service. Form W-4R – Withholding Certificate for Nonperiodic Payments and Eligible Rollover Distributions
8
Internal Revenue Service. Waiver of 60-Day Rollover Requirement Rev. Proc. 2016-47
9
Internal Revenue Service. 2025 Instructions for Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
10
Internal Revenue Service. Retirement Topics – Disability
11
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
12
Internal Revenue Service. Substantially Equal Periodic Payments
13
Internal Revenue Service. Notice 2024-55 – Certain Exceptions to the 10 Percent Additional Tax Under Section 72(t)
14
Internal Revenue Service. Access Retirement Funds in a Disaster
15
Internal Revenue Service. SIMPLE IRA Withdrawal and Transfer Rules
16
Internal Revenue Service. 2025 Instructions for Form 8606 – Nondeductible IRAs