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. Are Simple IRA taxes the same as traditional IRA taxes?

    Discover the tax difference between a SIMPLE IRA and a traditional IRA before you determine which retirement plan is the ... Read Answer >>
  3. 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 >>
  4. 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 >>
  5. Can I have a self-directed IRA or Roth IRA using the forex market?

    In the U.S., one of the best ways for individuals to protect their income from taxes and save for retirement is by using ... Read Answer >>
  6. How does an IRA grow over time?

    Learn how the magic of compounding helps grow individual retirement accounts, or IRAs. IRAs are one of the most proven options ... Read Answer >>
Related Articles
  1. 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.
  2. Taxes

    Roth IRA Vs. Traditional IRA

    Learn more about the differences between a Roth IRA and traditional IRA.
  3. Retirement

    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.
  4. 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.
  5. Options & Futures

    House Your Retirement With Self-Directed Real Estate IRAs

    Investors are now able to invest directly in real property, mortgages and other assets.
  6. Products and Investments

    7 Top IRA Strategies for Your Clients

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

    Which Assets Can You Hold In Your IRA?

    You're not allowed to hold every kind of asset in an IRA. What can you include – and which ones are banned?
  8. Retirement

    Moving Retirement Plan Assets: How To Avoid Mistakes

    Sometimes things go wrong in a simple transfer of funds. Make sure you know how to avoid penalties.
  9. Retirement

    How IRS Form 5498 Helps You

    If you have an IRA, you'll be getting this form. Here's the useful information it contains.
  10. Retirement

    The Best Bet for Taxes: Traditional or Roth IRAs?

    Choosing a Traditional IRA over a Roth IRA, or vice versa, depends on financial situation and long-term goals, especially if you want to trade.
RELATED TERMS
  1. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  2. Disclosure Statement

    1. A document explaining the rules of an IRA in plain, nontechnical ...
  3. Individual Retirement Account - IRA

    An investing tool used by individuals to earn and earmark funds ...
  4. Revoked IRA

    An IRA holder may revoke an IRA within the 7 days after the IRA ...
  5. IRS Publication 590: Individual Retirement Arrangements (IRAs)

    A document published by the Internal Revenue Service (IRS) that ...
  6. IRA Rollover

    A transfer of funds from a retirement account into a Traditional ...
Trading Center