Can you take a loan on a Simple IRA?

The short answer to this is no, you can’t take a loan on your Simple IRA. There are several restrictions on the Simple IRA and one such restriction is that you can’t take a loan against it.

Taking a loan against something that protects your retirement such as the Simple IRA is not a good idea and is not advised by financial planners. However, in dire circumstances, you may have to take a premature distribution from your Simple IRA.

This means that you can take out money from your Simple IRA if you are younger than 59 1/2 years once in a 12 month period.

If you take a premature distribution, then you need to replace the money that you borrowed within a sixty day period. If you fail to do that then you will be charged a 10% penalty.

Tax Implications

If you decide to take an early distribution from your IRA before you reach the age of 59 1/2, there will be tax implications. You will need to fill out IRS form F5329 and declare the amount that you have taken as early IRA distribution. Normally, the tax liability will be 10% over and above your normal income taxes that you pay on your regular income. However this will depend on your specific case and you need to fill out Form F5329 to get a correct estimate of how much extra you will have to dish out.

Exceptions to the Tax

There are certain exceptions to the tax implications if you withdrew money from from your Simple IRA. These are conditions such as death or disability, payment for medical expenses which exceed 7.5% of gross income, payment for divorce settlements and retirement at the age 55 or above. Whether you qualify for these exceptions depend on your specific case and you need to consult a tax expert to get an exact picture of your case.


Taking a loan on a Simple IRA is not possible and early distribution is fraught with penalties in the form of excess tax or repayment default. All this makes tapping into your retirement fund such as the Simple IRA, the absolute last resort.