Loan with Roth CONTRIBUTIONS as collateral?

[Steve Ryan]

It seems too simple to not already exist, but I've had zero luck researching it. I have both a Roth IRA and a Roth 401(k), to which I've made about $60k in total contributions. Since I already paid tax on that money, I can withdraw it tax-free and penalty-free at any time for any reason. The obvious downside of taking it out is that it's no longer in the tax-advantaged retirement account and can never be put back in.  But what if a bank could give me a secured loan up to the amount of my documented contributions, while also holding that same money as collateral?

If they're concerned I'll lose some or all of the account value at the same time as I default on the loan, they could roll the contribution money into an identical account at their institution where the only investment option is cash (or whatever they consider safe enough).  It seems like zero risk for the bank, meaning it should be super-low interest, and my retirement account remains intact.  The only downside for me (besides debt service) is the opportunity cost of not having the money actively invested.  In that sense, I'm effectively "borrowing" earning power from my retirement account to make cash flow today.  The quicker I pay off the loan, the quicker I can get that money "back in the game."

Am I missing some important considerations, or is this already a thing?

[Brian Eastman]

@Steve Ryan

IRS rules prohibit you from pledging your retirement plan as collateral for a personal loan.