Lesson 15 of 25 · 6 min
Borrowing against a retirement account: what is pledged
A plan loan pledges the vested retirement account, not the house and not the car.
A retirement-plan loan is a pledge of the vested account. Rules vary by plan; a reader's own plan belongs with a qualified professional. What this lesson names is the collateral, not a product to take. Track 1 lesson 1 is the definition: collateral is a claim the lender can act on, while you continue to own the asset. Here the asset is the vested retirement account, not the house and not the car.
Invented figures. Vested balance $42,000. Plan loan $18,500. What is pledged is the $42,000 account. Offset remaining is $42,000 − $18,500 = $23,500 still invested. The loan is secured by the account. Ownership of the $42,000 has not moved to a third-party lender in the brokerage sense; the plan is lending against its own participant's vested balance. The pledge is still a pledge: $18,500 of that account is the collateral for $18,500 of principal.
Track 1 lesson 1's list still holds, pointed at a different asset. Someone other than you can treat that $18,500 as covering the loan. Moving the pledged amount elsewhere is not a free transfer while the loan is outstanding. The $23,500 offset is the part of the vested account that is not this loan's collateral, not a second facility and not a house. Rules vary by plan; a reader's own plan belongs with a qualified professional.
The pledged asset is the vested account. The house is not in this agreement. The car is not in this agreement. The offset is $23,500 still invested.
Key terms
- Plan loan
- A loan secured by the vested retirement account. Rules vary by plan; a reader's own plan belongs with a qualified professional.
- Vested balance
- The account value the plan treats as the participant's. The asset being pledged.
- Offset remaining
- Vested balance minus the plan loan. On these figures, $42,000 − $18,500 = $23,500 still invested.
Worked example
What is pledged, and what is not
Invented plan. Vested balance $42,000. Plan loan $18,500. Rules vary by plan; a reader's own plan belongs with a qualified professional.
- Asset pledged
- The vested account
- Loan principal
- $18,500
- Offset still invested
- $23,500
- House in this pledge
- No
- Car in this pledge
- No
Track 1 lesson 1, on a retirement account.
$42,000 − $18,500.
The $18,500 is secured by the account. The $23,500 is the rest of the vested balance. Neither figure is a house or a car.
Check yourself
An invented plan shows a vested balance of $36,000 and a plan loan of $14,200. What is pledged, and what is the offset still invested?
A plan loan is a pledge of an asset you still own, Track 1 lesson 1's collateral definition on a retirement account rather than a brokerage account. Open What collateral actually is →
Saved in this browser only. No account, nothing sent anywhere.
Educational only. Nothing in this lesson is investment, legal or tax advice, or a recommendation to enter into any transaction. Figures are illustrative and computed from the inputs stated in the lesson.