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You may have to wait for the loan to be approved, though in most cases you’ll qualify. The IRS limits the maximum amount you can borrow at the lesser of ,000 or half the amount you have vested in the plan.Sometimes there’s also a loan floor, or minimum amount you must borrow.You must also pay market interest rates, which means the rate must be comparable to what a conventional lender would charge on a similar-sized personal loan. That’s the longest repayment period the government allows—though if you prefer a shorter term, you may be able to arrange it.The only exception occurs if you’re using the money to buy a primary residence—the home where you’ll be living full time.In that case, some plans allow you to borrow for 25 years.Spousal Stamp of Approval If you’re married, your plan may require your spouse to agree in writing to a loan.
But while taking a loan or a hardship withdrawal may help solve an immediate need, there can be consequences that may reduce your long-term financial security.
However, a Roth IRA (see below) offers special opportunities to escape taxes and penalties that aren’t available when you withdraw funds from a Traditional IRA.
Knowing all this, let’s look at the pros and cons of taking funds from your Roth—beyond staying out of the clutches of a bank or other lender.
This is especially true for those with poor credit, who may not have access to traditional lending options or be able to borrow money at a reasonable interest rate.
Withdrawing the money from your retirement account is a way to fund these items without borrowing money from a third party that charges you interest. Depending on your age and various tax rules, you may owe both income taxes and penalties on the money you take out of retirement accounts.