Can an Employee Borrow Against a Simple IRA?

SIMPLE IRAs are only available to businesses with 100 or fewer employees.
i David De Lossy/Photodisc/Getty Images

A Savings Incentive Match Plan for Employees of Small Employers, commonly referred to as a SIMPLE IRA, gives small businesses (those with fewer than 100 employees) a simple way to provide retirement benefits to their workers, while offering employees the option of contributing pre-tax dollars to their retirement accounts through payroll deduction. The same withdrawal rules apply to both SIMPLE and traditional IRAs, and that includes a prohibition against borrowing against the account.

Borrowing from Your IRA

Some types of qualified retirement plans, such as your 401(k), might allow you to borrow money from the vested amount in the account, up to maximum limits established by law. IRAs and IRA-based plans such as SIMPLE IRAs aren't included with those kinds of qualified plans. You can't borrow money from your SIMPLE IRA or any other IRA-based plan.

Borrowing Against Your IRA

Not only is borrowing money from your SIMPLE IRA prohibited by law, you can't pledge the assets in your SIMPLE IRA as collateral for a loan. If you do, the Internal Revenue Service will consider the pledged assets to be distributed, and they will cease to be part of your IRA. You'll owe federal income taxes on the value of the assets, plus any early distribution penalties that might be involved.


Unlike some other types of employer-sponsored pension plans, all of the money contributed into your SIMPLE IRA belongs to you, regardless of whether the contribution was made by you or by your employer. You can withdraw those funds anytime you want and use them for any purpose. Your employer can't restrict your ability to make such a withdrawal. Any amount you withdraw is subject to federal income taxes and possible penalties.


Some financial advisers erroneously refer to an IRA rollover transaction as taking a tax-free, interest-free loan from your SIMPLE IRA. This kind of transaction does not involve borrowing from your account. It involves taking possession of some or all of the assets in your account, then depositing an equal amount back into the same or a different SIMPLE IRA, traditional IRA, qualified plan or tax-sheltered annuity plan. You have 60 days to accomplish the rollover. If you miss the 60-day window, the IRS considers that money to be distributed, and you'll owe income taxes and any applicable penalties on the withdrawal.

the nest