Does anyone know if its possible to use IRA accounts as collateral for mortgage loans?

I do not see how you could use the money in an IRA as collateral. How could the financial institution secure its interest on the account? It occurred to me that maybe you could borrow against the IRA. Nevertheless, I have to say that I am completely unfamiliar with borrowing from an IRA. Therefore, I did a search in the internet and found this article in Bankrate.com and this article in a Cincinnati newspaper that talk about borrowing from an IRA. Unfortunately, it seems like borrowing is limited to 60 days and the money needs to be replaced to avoid penalties.

I don't think you can use the IRA as collateral and it doesn't seem possible to borrow from it for longer than 60 days

First, the information that you can't use an IRA as "collateral" is incorrect. Many companies, via their credit unions, offer just that. You actually win because you end up paying yourself the interest. No money actually leaves the account, so, you are NOT subject to taxes, penalties, etc. UNLESS you don't pay the loan according to the rules....

The caveats are that, in most cases, the credit unions or financial institutions must also hold the IRA account as well. And, the default/bad payment penalties are usually substantial, since they include the taxes, etc.

Just thought you all would want to know. For more details, you can contact Addison Avenue Federal Credit Union or other financial groups to get the details.

KAM:

Thanks for the contribution, and believe me I am not involved in retirement planning at all in my professional life. However, I think the original poster was talking about using the IRA as collateral for a "mortgage loan".

In addition, when you say "companies"..... would you be referring to a 401k instead of an IRA? Although, I have to admit that I would be the last person to open an IRA in a bank or credit union. I might work at a bank, but I like the flexibility in managing my retirement money that a brokerage house provides.

Thanks again for the contribution.

Prohibited Transactions--Consequences Suffered by Non-Conforming IRAs
Denise Appleby, CISP, CRPS
July 30th, 2003


Between the time you contribute to and distribute from your IRA, you will likely invest your assets to make the best possible return. When investing your IRA assets or implementing certain transactions, you must exercise caution. Lack of knowledge about the rules can lead to serious tax consequences, including the disqualification of your IRA assets. To assist IRA holders in protecting the qualified status of their IRAs, the department of labor provides a list of transactions that IRA holders should avoid, which are referred to as prohibited transactions. Here we review the common prohibited transactions for IRAs, SEP and SIMPLE IRAs.


What is a Prohibited Transaction?
A broad definition of a prohibited transaction is the improper use of your IRA assets by you--the IRA owner--your beneficiary, or certain other parties who are referred to as "disqualified persons." Disqualified persons include:

Members of your family, such as your spouse, ancestor, lineal descendant, and any spouse of a lineal descendant.
Any party that exercises discretionary authority or discretionary control in managing your IRA or exercises any authority or control in managing or disposing of its assets.
Any party that charges to provide investment advice with respect to your IRA or has any authority or responsibility to do so.
Any party that has any discretionary authority or discretionary responsibility in administering your IRA.
Your IRA custodian/trustee.
Any entity in which you own at least a 50 percent share.
Examples of a Prohibited Transaction
The following are examples of improper uses of IRA assets that result in prohibited transactions:

Borrowing money from your plan - Many qualified plans offer loans to participants, but these participants are allowed a certain period within which they must repay the loan with interest. IRAs, on the other hand, are prohibited from making loans to any party, including IRA owners and any disqualified person. Borrowing is not to be confused with legitimate and allowable investments, such as private placements. Nevertheless, caution must be exercised to ensure that funds are not invested with a disqualified person. For instance, if your wife is starting a property rental business, she may need investors to provide start up capital. While you may be able to use your regular savings to invest in the business, you cannot use your IRA assets because your wife is a disqualified person. The investment would be allowed if the business owner were not a disqualified person.

Selling property to your plan - If you sell property to your IRA, the sale is a prohibited transaction.

Receiving unreasonable compensation for managing your plan - The compensation the asset manager receives for managing IRA assets should be comparable to the compensation for managing assets of similar balances for all other customers of the asset manager.

Using the IRA as a security for a loan - You are not allowed to use your IRA, unlike your regular savings account, as collateral for a loan as the amount you pledge as security will be deemed a distribution by the IRS.

Buying property for personal use (present or future) with IRA funds - Using IRA assets to buy property for your personal use is considered an improper use of IRA assets and could result in disqualification of the IRA.
Effect of a Prohibited Transaction
Generally, the IRA involved in a prohibited transaction is treated as if the assets were distributed on the first day of the year in which the transaction occurs. This means that the assets must be added into the income of the IRA owner, and if the IRA owner is under age 59 ½, the early-distribution rules will apply. For prohibited transactions involving pledging the IRA balance as security as a loan, only the amount pledged is considered disqualified and treated as a distribution.