Q:

Can you use your IRA accounts as collateral for your student loans?

A:

Quick Answer

The Internal Revenue Service does not allow individual retirement accounts, or IRAs, to be used as collateral for loans, reports Investopedia. This is because the money cannot be paid to a beneficiary who is under age 59.5. The amount pledged as collateral is deemed a distribution by the IRS.

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Full Answer

If all or part of the funds in an IRA is pledged as collateral, the IRS no longer considers the account an IRA, notes The Nest. The funds in the IRA are subject to taxes and a premature distribution penalty. For example, if $15,000 of a $75,000 IRA account is pledged as collateral for a loan, a 10 percent penalty is assessed on the total amount of money in the account plus income taxes, reports Wise Stock Buyer.

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