Can I Take Out a Loan and Use My Pension As Collateral?

Using a pension plan as collateral, it is possible to take out a loan based on the plan amount, according to the IRS. The amount of the loan may be limited, however, either by statutory regulation or due to the requirements of the plan itself.

As of 2015, all loans from pension plans have a statutory limitation setting a ceiling on the loans at $50,000, according to the IRS. The amount that can be borrowed against a plan can actually be much less, depending on the size of the plan and whether there have been previous loans taken against it. Generally, the limits are the lesser of $50,000 or the greater of 1/2 of the total amount of multiple pensions held by the same company or $10,000. Individual pension plans may also have a limit, which if it is under the three statutory choices must be used. If there are prior outstanding loans against the plans, then any new loans, when combined with the prior loan due, must not exceed the statutory or plan limits.