IRA 'rollover' allows use of funds for 60 days


Q: I was laid off from my job about three months ago and have lined up a new job, but it won't start for another six weeks. I am running short of cash and would like to know if I can borrow money from my IRA account?

A: You cannot borrow money from an IRA account, but there are several ways to get your hands on money contributed to an IRA. The first, and best way for you to utilize your IRA money until you start your new job, is to notify the trustee of your IRA account (usually a bank or mutual fund) that you want to take a distribution from the account as a "rollover."

With a rollover, you get to use your IRA money for 60 days without penalty. Then you must re-invest the same amount of money that you received as an IRA distribution into another IRA account.

If you do not reinvest in 60 days, you will pay a penalty tax of ten percent to the IRS on top of regular income tax on the distribution.

Even though that penalty may seem onerous, don't forget that in the 28 percent tax bracket, 28 cents of every dollar contributed to a tax-deductible IRA was donated by Uncle Sam. So you're actually just repaying what Uncle Sam gave you in the first place.

Of course, once you attain age 59 1/2 you can begin to withdraw money from an IRA without any penalties or need to reinvest.

Another way to withdraw funds from an IRA before age 59 1/2 without penalty is to use a periodic payment plan. That means you must receive roughly equal amounts of money that are projected to deplete the account over your life expectancy as calculated by IRS actuarial tables.

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