NE1 borrow from or cash out an IRA?

[torredcuda]

As with a lot of us times are tough money wise lately and I`m considering getting some money out of my IRA to help with cash flow(bills).I know there are penaltie for early withdrawal but what exatly are they?I think you can also borrow money from them without penalties and then jusy pay it back but that kinda defeats the purpose if I end up with another payment every month. 

[whitesatinmopar]

Jeff I'm sure all that would depend on bank and state regulations and personal agreements. And I don't know if partial withdraw would be different from closing out such an account. I've been told here that all taxes owed would be held out upfront and plus the "penality", all total it would be near a 40% "loss" or deduction,  just a quideline, but only your bank could accurately answer your question.

[73Chally]

You should avoid that at all costs (literally).  The bank will absolutely kill you with fees, etc if you cash out or withdraw from an IRA early.  I can't give you exact numbers, but you will lose a lot of money.

[mcgheejt]

You should avoid that at all costs (literally).  The bank will absolutely kill you with fees, etc if you cash out or withdraw from an IRA early.  I can't give you exact numbers, but you will lose a lot of money.

   Do it ONLY in case of absolute emergency. 

[BIGSHCLUNK]

I agree here too! Dont shoot yourself in the foot if you dont have to. 

[Moparal]

I got a loan from my 401k through Franklin/tempelton which handles my stuff.  I keep adding 9% back into my account every payday. Plus the loan was 4% interest which goes back into my account. They just charged me a 50 buck fee for the loan. I also pay my loan back 160 a week.  So in reality, it cost me 50 bucks , no penalties, plus payed myself 4% on 15k I got out.  The draw back is, that if you default on the loan payments, then you will be charged all of the penalty fees and charges, so just keep paying the note back and all is cool. Also at the same time I still put 9% in and got 4% added in on interst on it.  The loan and stuff comes out of my check right off the top so I still dont pay taxes on it

[JH27N0B]

You can take a loan from a 401K at your work, one drawback of that is that if you lose your job or quit, you have to pay the loan back pretty much immediately, or you get hit with all the taxes and penalties for early withdrawal.
I don't think there are any provisions to take a loan from a IRA.
There are some provisions where you can take a hardship withdrawal from an IRA or rollover 401K without the penalties (though you still owe taxes).  Those hardship withdrawals are allowed for medical expenses and being unemployed a certain amount of time IIRC.  There may be a provision that allows for money to be taken from an IRA for the downpayment on a house, but my memory is vague on that.
You really need to consult a tax attorney or tax specialists to find out the exact facts on this subject.

[torredcuda]

I`ll obviously talk to the bank befroe I do anything but I figured I`d get an idea on what some options are first.I`m far from desparate yet just lack cash flow when the monthly bills seem to be more than the income coming in lately and svaings are dwindling awfull low.

[quapman]

I just did this exact thing. I figure I can mismanage my money better than the F*ckholes at the "investment" firms since I lost 60% in less than a year. I won't go into details about being talked out of switching to guaranteed interest BEFORE the meltdown.

Anywhoo, you'll get 1099'ed because the cashout is considered income. (Usually if you've rolled a 401K into an IRA.) You have the option of having taxes withheld before receiving your money at a rate you determine. (I did this at 20%)

THEN, you'll still get whacked another 10% when you file your taxes as an early withdrawl penalty.

See, the government (IE big banks) wants your money tied up so the rich folks can use it to manipulate the markets and leave the middle class holding the bag. No more for me, thanks.

[bb71challenger]

I got a loan from my 401k through Franklin/tempelton which handles my stuff.  I keep adding 9% back into my account every payday. Plus the loan was 4% interest which goes back into my account. They just charged me a 50 buck fee for the loan. I also pay my loan back 160 a week.  So in reality, it cost me 50 bucks , no penalties, plus payed myself 4% on 15k I got out.  The draw back is, that if you default on the loan payments, then you will be charged all of the penalty fees and charges, so just keep paying the note back and all is cool. Also at the same time I still put 9% in and got 4% added in on interst on it.  The loan and stuff comes out of my check right off the top so I still dont pay taxes on it

I did pretty much the same thing. I borrowed 4k out of mine last year. I still have 2k to put back in but I am paying myself 4.5% so its no big deal. I was thinking of doing it again to both finish of my 71 and get a good start on my daughters 70 but I dont know yet.

[ksierens]

The problem is you are missing out on the potential for a much greater return, though I understand that they are times when it is needed.

[bb71challenger]

The problem is you are missing out on the potential for a much greater return, though I understand that they are times when it is needed.

Yep you are right, if you take out a loan there is that much less to generate revenue.

[Moparal]

Yes, I hear you on that to. But my company is employee owned also, so they give us profit shares at the end of each year along with 401k donation matches. Like this year I may get 50k last year I got 48k  ...  It all adds up after 15 years of service. So the little im not gaining in my 401k I gain in shares

[quapman]

The problem is you are missing out on the potential for a much greater return, though I understand that they are times when it is needed.

"potential"

Yep, in the 20 years I've had money in 401K's or IRA's, I've gained a total of MINUS $14,000. Did everything the "experts" recommend. They get their fees and commissions, I get NADA.

[JeffAARy]

Is your IRA a traditional IRA or a Roth IRA?  That will make a difference as one you already paid taxes on and the other you haven't.