This question came up today. Can an IRA be used to secure a loan if the owner is permanently disabled? One of our lenders has been told this is permissible, but he wasn't sure. I'm doing some reading, but wondered if anyone knew this. Thank you.

Angela, I think there was a previous discussion on why we can't use IRAs as collateral on loans. You might want to check.

Using an IRA as collateral for a loan violates the prohibition that the taxpayer can have no current use of the funds. It constitutes a deemed distribution of the entire amount of the IRA, not just the portion used to secure the loan.

The premature distribution penalty (10%, collected by the IRS) is waived for distributions under 59 1/2 when the participant is disabled.