Using an IRA as collateral for a commercial loan | Ed Slott and Company, LLC

Using an IRA as collateral for a commercial loan

I have a client who is asking if they can use their IRA as collateral for a commercial loan. It is my understanding that using an IRA as collateral is considered the same as making a withdrawal from the IRA thus creating a taxable event.
Is this correct?

Yes, that is a prohibited transaction and results in a deemed taxable distribution of the IRA on Jan 1st of that tax year.

 

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