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. What are the best ways to plan for retirement?

    Learn the basic steps to creating a solid retirement plan that can support you and your family, and find out how to manage ...
  3. 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 ...
  4. Who is eligible for a Teacher Retirement?

    Learn about the retirement option, the Teacher Retirement System, offered to teachers and other public school employees, ...
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 ...

You May Also Like

Related Articles
  1. You need to be patient, diligent and perseverant to be successful at investing, but more importantly, you need to start early.
    Investing Basics

    Why You Should Start Investing Early? ...

  2. Many of us fantasize about winning a big lottery jackpot. Let’s say that actually happened? What would you do with the money? How would you manage it?
    Professionals

    Tips For Managing A Cash Windfall

  3. Retirement

    Planning Ahead for 2015's Tax Law Changes

  4. Even though inflation currently seems tame, it's still the worst enemy of retirees. Here are some tips to reduce its impact.
    Professionals

    Tips For Managing Inflation In Retirement

  5. Retirement

    5 Crucial Tips For Your Retirement Income ...

Trading Center