Don't use brokerage account to guarantee IRA debts

March 25, 2012

Discover why brokerage accounts can't be used to deal with IRA debts.

A: It is considered a prohibited transaction for you to use your brokerage account to guarantee the debts of your IRA. The broker indemnification agreements usually provide that the broker can use all of your accounts and give him or her a security interest in your accounts if your IRA has a debt that it cannot satisfy. This type of agreement is considered the same as extending credit to your IRA, which is prohibited and can result in the loss of all future tax deferral and immediate taxation of the entire IRA as well as a 10% penalty for early distributions if you are under age 59 1/2 at the time of the transaction.