Can an IRA be used as security for a loan?

By Denise Appleby AAA
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 purchase mutual funds for my IRA?

    Learn how to invest your IRA assets in mutual funds. Discover a few of the different types of mutual funds available for ...
  2. How do Pay As You Go pension plans work?

    Learn how pay-as-you-go pension plans are different than fully funded pension plans and why some government plans are running ...
  3. Who is eligible for a Teacher Retirement?

    Learn about the retirement option, the Teacher Retirement System, offered to teachers and other public school employees, ...
  4. What are the main benefits of a Locked-in Retirement Account (LIRA)?

    Read about the main benefits you can realize from transferring your Canadian pension funds into a Locked-in Retirement Account, ...
RELATED TERMS
  1. Elder Care

    Elder care, sometimes called elderly care, refers to services ...
  2. Gold IRA

    Definition of Gold IRA
  3. Eligible Transfer

    An IRS-allowed movement of assets into or out of an individual ...
  4. Leveraged Benefits

    The use – by a business owner or professional practitioner – ...
  5. Peri-Retirement

    A term for the period of time leading up to actual retirement. ...
  6. MyRA

    A new tax-advantaged retirement account that President Barack ...
Related Articles
  1. Want To Know How To Save For Retirement? ...
    Retirement

    Want To Know How To Save For Retirement? ...

  2. 8 Essential Tips For Retirement Saving
    Investing Basics

    8 Essential Tips For Retirement Saving

  3. 'Donut Hole' Essentials For The Financial ...
    Investing Basics

    'Donut Hole' Essentials For The Financial ...

  4. Tips To Beat Inflation For Near-Retireees
    Investing News

    Tips To Beat Inflation For Near-Retireees

  5. How did 27,000 investors answer to these ...
    Economics

    How did 27,000 investors answer to these ...

Trading Center