Need advice on a secured loan?

My parents are currently looking to take out a secured personal loan, with their house being built right now, they are unable to use the equity as collateral. The financier said they could take the funds out of their retirement fund (401k, 403b, pension,etc) and put it in a CD for the loan. Because they don't want to pay the large taxation from withdrawing that much, and only receive 1% interest instead of the guaranteed 7% they are now receiving, my question is, is it possible for a bank to put a lien on the retirement fund without having to have the funds put into a CD?

A retirement fund (IRA, 401K, 403B) can't not be collateral under IRS rules. If they are still working, they might be able to borrow the lesser of: [ 50% of their vested value or $50K ] from their 401K. However, if they leave their job, the entire loan often becomes due in 60 days!

I'd run away as fast as possible from any adviser that told them to take funds out of their retirement fund. This person is looking at his only at his commission and not what is best for the client.

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Regards
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