Are Alternative Investments Allowed Inside an IRA?


Most retirement savers associate individual retirement accounts (IRA) with traditional investments like stocks, bonds, and even savings accounts. You are not limited to “paper” investments when you are allocating your resources though. You are free to invest your retirement savings in many types of alternative investments too.

This attention to alternate investments has grown during the last few years. During the bull markets of the last part of the twentieth century, most investors were pretty content to invest in stocks and other market products. When the market went south for a few years, savvy investors started considering other types of assets. This helped them increase returns and diversify their risks.

What to Know about IRAs with Alternate Investments

  • Individual retirement accounts have been allowed to hold a variety of assets since Congress authorized them in the 1970s.

  • The current percentage of these alternative investments is fairly small, from two to five percent, but growing.

  • Some types of assets are prohibited by the IRS. These include life insurance, subchapter S company stock and collectibles.

  • Some investors are unclear about types of alternative investments that are excluded. You might not be able to include a collectable coin with a purely artistic or numismatic value in your account. You can include coins with a value that is largely derived from their precious metal content.

  • Self-dealing is usually totally off-limits. For example, you are allowed to purchase rental property and use the income to fund your IRA. You are not allowed to lease that house or condo back to yourself. Similarly, you cannot just borrow money from your retirement funds. You have to totally segregate your retirement and non-retirement accounts.

What Types of Alternative Investments Are Allowed by the IRS?

Some common types of allowed alternative investments:

  • Real Estate

  • Precious Metals

  • Business Partnerships

Some less common type of investments include:

  • Fishing Rights

  • Debt

  • Cattle

  • Movie Rights

Yes, you can purchase a condo and rent it out. As long as all of your profits are channeled into your IRA account, you can run your rental property business purely as a retirement investment. The same is true of a number of other types of non-traditional investments.

Do You Need A Special Broker?

You can find brokers who specialize in managing IRAs with alternative investments. If you decide to go this route, expect to pay higher fees than you pay for conventional brokers. You may also have to pay for expert advice before conducting certain types of transactions that are less clear than traditional IRA investing. There is also a lot more potential for paperwork because some assets and transactions are not so easy to evaluate as simply depositing money into a market account.

Expect alternative IRA investments to be somewhat more complicated and troublesome than traditional accounts. They can still be attractive because of their potential to provide better returns and diversify risks.

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