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. 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 >>
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

    4 Basic Facts To Know About IRAs

    Money in an IRA can work harder for you. Here's what you need to know first.
  5. 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.
  6. Financial Advisor

    7 Top IRA Strategies for Your Clients

    With IRA season in full swing, advisors should consider these seven strategies for clients.
RELATED TERMS
  1. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
  2. IRS Publication 590: Individual Retirement Arrangements (IRAs)

    A document published by the Internal Revenue Service (IRS) that ...
  3. Roth IRA Conversion

    A reportable movement of assets from a Traditional, SEP or SIMPLE ...
  4. Roth IRA

    A Roth IRA is an individual retirement plan that bears many similarities ...
  5. Gold IRA

    Definition of Gold IRA
  6. Same Property Rule

    A regulation relating to IRA rollovers stipulating that whenever ...
Hot Definitions
  1. Trickle-Down Theory

    An economic idea which states that decreasing marginal and capital gains tax rates - especially for corporations, investors ...
  2. North American Free Trade Agreement - NAFTA

    A regulation implemented on Jan. 1, 1994, that eventually eliminated tariffs to encourage economic activity between the United ...
  3. Agency Theory

    A supposition that explains the relationship between principals and agents in business. Agency theory is concerned with resolving ...
  4. Treasury Bill - T-Bill

    A short-term debt obligation backed by the U.S. government with a maturity of less than one year. T-bills are sold in denominations ...
  5. Index

    A statistical measure of change in an economy or a securities market. In the case of financial markets, an index is a hypothetical ...
  6. Return on Market Value of Equity - ROME

    Return on market value of equity (ROME) is a comparative measure typically used by analysts to identify companies that generate ...
Trading Center