Retirement accounts as collateral

[Dan Krupa]

Question for the smart masses. I am catching up on podcast and I listened to episode 55 featuring @Jimmy Moncrief. He stated you could use a retirement account as collateral for an unsecured loan.  Does anyone know anything about that process?

Example: A person has 50k in a 401k or IRA account. Instead of cashing out and paying the penalty and taxes could you roll that in a self directed IRA and also use that money to secure a 25k unsecured loan?

[Brian Eastman]

@Dan Krupa

A self directed IRA would only be available to you if both the 401k & TSP were former employment. You will not be able to move those if you and/or your wife currently work for those employers.

With a self-directed IRA, a strategy of combining funds belonging to you and your wife, for the purpose of flipping is very complex. If you include leverage in the mix, you are definitely in "ERISA tax attorney on your team" territory.

You will want to dig much deeper than internet forums or even the sales reps at most self-directed firms to ensure you have a strategy that will produce results without unnecessary regulatory risk or too much administrative overhead.  

Flipping houses in an IRA, if done on a regular or repeated basis is subject to UBIT taxation, since this is considered a trade or business (and therefore this tax-exempt entity is competing with tax-paying businesses). Something you will want to look into with your qualified tax advisor.