When you need to get a loan, sometimes you need collateral. People often ask, “can I borrow against my IRA?”
Unfortunately you can not borrow against IRA accounts. However, lenders often ask what your IRA account balance is. Why do they care if you can’t borrow against an IRA?
In most cases, the lender wants to understand what type of safety buffer you have. If you were to fall on hard times, you might dip into your IRA (or other retirement account) savings to make your loan payments. It may be a better alternative than missing loan payments.
Even though they ask about your IRA balances, you’re still not borrowing against your IRA. The account is not collateral, and the lender cannot force you to pay out of your IRA. In fact, IRAs and other retirement accounts are generally protected from creditors.
Creditor protection does not keep them from asking. If you’ve defaulted on a loan, you may get calls from collection agencies telling you to liquidate your IRAs and other retirement accounts to pay the bill. They’re allowed to ask, but they cannot force you to liquidate the accounts. You didn’t borrow against the IRA, so they have no rights to it.
If you’re considering using money in your retirement account to pay off debt, think carefully before you do anything. Read Should You Cash out a Retirement Account to Pay off Debt?