A:

The IRS prohibits the use of an IRA as security for a loan. If an individual borrows money against his or her IRA, the IRA ceases to be an IRA as of the first day of the year in which the transaction occurs. This means that the IRA balance as of the first day of the year is treated as an IRA distribution, which may be subject to income tax. If the IRA owner is under the age of 59.5, the amount may also be subject to an additional 10% early-distribution penalty.



This question was answered by Denise Appleby
(
Contact Denise)



RELATED FAQS
  1. Can I hold multiple IRAs?

    IRAs are investments made to plan for retirement, which offer certain tax advantages, depending on the type, and often matching ... Read Answer >>
  2. My 80-year-old mother used her Roth IRA assets to make an $11,000 annual gift tax ...

    Under the current version of the law, any IRA or Roth IRA assets that are gifted while the IRA owner is alive are considered ... Read Answer >>
  3. How do I open an IRA?

    Opening a Roth or Traditional IRA online with a minimal deposit takes less than 15 minutes when starting an account with ... Read Answer >>
Related Articles
  1. Retirement

    Avoiding "Prohibited Transactions" In Your IRA

    To avoid jeopardizing your IRA assets, find out what transactions are prohibited.
  2. Retirement

    11 Things You May Not Know About Your IRA

    These little-known features will help you get the most out of your retirement savings.
  3. Retirement

    5 Secrets You Didn't Know About Traditional IRAs

    A traditional IRA gives you a current-year tax benefit and future years of tax savings – minus the income restrictions that limit who can have a Roth IRA.
  4. Retirement

    Roth vs. Traditional IRA: Which Is Right For You?

    To answer this question, you need to consider several of the factors we outline here.
  5. Financial Advisor

    Why Rollover Your Retirement Assets into an IRA?

    If you're in the workplace now, chances are you'll ask yourself this question eventually: 'Should I rollover to an IRA?' Here's a guide.
  6. Financial Advisor

    7 Top IRA Strategies for Your Clients

    With IRA season in full swing, advisors should consider these seven strategies for clients.
  7. Retirement

    What's the Tax Hit on an IRA Withdrawal?

    How much taxes you'll pay on IRA withdrawals depends on a variety of factors. Use this guide to plan ahead.
  8. Retirement

    House Your Retirement With Self-Directed Real Estate IRAs

    Investors are now able to invest directly in real property, mortgages and other assets.
  9. Retirement

    How To Correct Ineligible (Excess) IRA Contributions

    Eager to save for retirement? Learn how to avoid overpayment penalties.
RELATED TERMS
  1. Disclosure Statement

    1. A document explaining the rules of an IRA in plain, nontechnical ...
  2. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  3. Revoked IRA

    An IRA holder may revoke an IRA within the 7 days after the IRA ...
  4. Individual Retirement Account - IRA

    An investing tool used by individuals to earn and earmark funds ...
  5. IRA Rollover

    A transfer of funds from a retirement account into a Traditional ...
  6. IRS Publication 590: Individual Retirement Arrangements (IRAs)

    A document published by the Internal Revenue Service (IRS) that ...
Hot Definitions
  1. Magna Cum Laude

    An academic level of distinction used by educational institutions to signify an academic degree which was received "with ...
  2. Cover Letter

    A written document submitted with a job application explaining the applicant's credentials and interest in the open position. ...
  3. 403(b) Plan

    A retirement plan for certain employees of public schools, tax-exempt organizations and certain ministers. Generally, retirement ...
  4. Master Of Business Administration - MBA

    A graduate degree achieved at a university or college that provides theoretical and practical training to help graduates ...
  5. Liquidity Event

    An event that allows initial investors in a company to cash out some or all of their ownership shares and is considered an ...
  6. Job Market

    A market in which employers search for employees and employees search for jobs. The job market is not a physical place as ...
Trading Center