Answer:
According to IRS form 5329, if during the tax year you use all or any part of an IRA Annuity as security for a loan the total value of the contract is treated as being distributed as of the first day of the tax year. See form 5329 instructions for additional details.
Non qualified Annuities have been used to secure loans for years. To be sure you perfect your interest you should call the insurance company and request the proper assignment form. Now days there are numerous allocations available for what are called variable annuities. The funds supporting the annuity can be invested aggressively or conservatively and you need to be aware of the allocation. If the loan is sizeable you may want to request that the owner change the allocation to a very conservative investment such as government bonds.
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