By contrast, an "indirect rollover" occurs when you receive a check for the value of your IRA and are then responsible for depositing it into a new IRA within 60 days. If you stick to that window, you won't be hit with an early withdrawal penalty. And that's where the option to borrow from an IRA comes into play.
If you need money and know you'll be able to pay it back within 60 days, you can initiate a rollover, use that money temporarily, and then pay it back to avoid a penalty. Bonus: You don't even have to deposit the funds into a new IRA; you can stick them right back into your existing IRA.
Now, this strategy is not without risk. If you don't deposit the money back into an IRA within that 60-day time frame, the amount removed will be treated as a distribution, which means it will be subject to a 10% early withdrawal penalty. But if your need for money is very short term (say you're self-employed, have a huge bill to cover, and are awaiting a payment for a major project that's coming within a month), using an indirect IRA rollover as a loan could work.
However, you're limited to one IRA rollover annually, so you can use this trick only once per year.
