What Assets Cannot Be Held in an IRA?
An Individual Retirement Account (IRA) allows you to save tax-free funds for retirement. An IRA can hold many different investments, such as leveraged equity real estate, energy MLPs and precious metals.
Some assets cannot be held in an IRA because they violate the exclusive benefit rule, including rugs, furniture, art, stamps and certain metals.
Real estate investment isn’t typically the go-to choice for an IRA due to the unique set of skills needed in property investing and its strict rules that may exceed most IRA owners’ capacities – not to mention that real estate may cost more than stocks or bonds.
Apart from specialized management requirements, purchasing property with your IRA carries with it some restrictions. You cannot buy property that will be used by yourself or family members (which could include spouses, children, parents, grandchildren or great-grandchildren). Furthermore, using it yourself for rent would violate the exclusive benefit rule and result in penalties being assessed to your IRA account.
Your IRA cannot finance property purchased from anyone outside its members using loans from themselves or anyone they know, as this would violate prohibited transaction rules and lead to unrelated business income tax liabilities on profits from property sales within one year of acquisition. Luckily, the IRS allows non-recourse loans as an option when financing property purchases by an IRA.
Investing in precious metals can be an excellent way to generate fast profits or build savings for the future. Unfortunately, the IRS places restrictions on what can be held within an IRA or retirement account; for instance American Eagle coins and Krugerrands cannot be kept there, nor numismatic gold (coins with collectable value), artwork antiques or furniture. Furthermore, all retirement accounts must be housed with custodians who allow trading futures contracts and options contracts.
Investors now have an alternative option available to them with Precious Metals IRAs: using their retirement accounts to purchase precious metals in an secure depository through an Individual Retirement Account (IRA). Such accounts provide investors with freedom and flexibility when selecting investments, including lower fees and secure storage for metals purchased with your IRA funds. They’re an effective way of diversifying portfolios against fluctuating stocks, bonds or paper assets while safeguarding against potential volatility risks.
IRS rules stipulate that IRAs cannot hold life insurance policies. Furthermore, an IRA must take care not to engage in prohibited transactions; these are defined as transactions that benefit either its holder or disqualified individuals like spouses, family members or business partners of its holder.
As well as avoiding prohibited transactions, an IRA should avoid investments that produce unrelated business taxable income (UBTI), which is a tax levied on earnings generated from assets not held within traditional investment vehicles.
Baker emphasizes the potential risk associated with investing in unconventional assets. An IRA may hold real estate, provided it is held in separate entity form; startup equity via crowdfunding platforms; precious metals that meet IRS purity standards such as gold, silver and palladium; limited partnership interests in oil or gas production companies; tax liens and deeds on foreclosed properties as well as tax deeds on foreclosed properties; as well as tax deeds of properties acquired at auction or tax deeds on foreclosed properties as tax deeds on properties acquired at auction; collectibles such as stamps, rugs or art; as well as coins that don’t qualify as currency investments.
Certain collectibles cannot be held in an Individual Retirement Account (IRA), such as artworks, stamps, rugs, coins and alcoholic beverages. If you invest in something not approved by the IRS then that investment would be considered a prohibited transaction and your IRA could be treated as a distribution – meaning taxes and penalties could apply when sold off to someone.
Keep in mind that in order to have unconventional assets held within an IRA or tax-deferred retirement account approved by the IRS, they must be stored with an IRS-approved custodian such as a bank, credit union, state-chartered financial institution or trust company. A self-directed IRA offers more flexible rules allowing the purchase of investments that might otherwise not be allowed – however research any investment before investing money into it!