When people think of IRA investments the most common ones that come to mind may be stocks, bonds and mutual funds. But when it comes to investment options, IRAs can be one of the most flexible retirement plans around.
In fact, there are only two types of holdings you cannot purchase within an IRA: (1) life insurance and (2) collectibles, which include a wide variety of things like artwork, antiques, stamps and fine wine.1
While many alternative investment options are available in IRAs, there are rules in place designed to prevent the inappropriate use of funds prior to retirement. For example, you can’t conduct any transactions between yourself and your IRA, such as selling personally owned real estate to your IRA.2 There are also restrictions preventing the use of an IRA to buy or sell real estate for others defined as “disqualified persons.” These people include a spouse, lineal descendants (children, grandchildren) and ascendants (parents, grandparents), your financial advisor and anyone who provides services to the IRA.3
Keep in mind, too, that whatever assets you invest in through your IRA should be part of your overall financial strategy. Any withdrawals are subject to the same rules regardless of the asset. Unqualified distributions before age 59 ½ may be subject to both income taxes and a 10 percent penalty tax for early withdrawal. Any other prohibited transactions may also be subject to a 15 percent excise tax, which can accrue if not caught for many years.
The idea behind these restrictions is that your IRA is intended to benefit you when you retire and not before. Individuals are encouraged to consult with a qualified professional before taking any withdrawals from their retirement assets.
1Advanta IRA. 2016. “IRS Rules for Self-Directed IRAs: Investment Restrictions, Disqualified Persons and Prohibited Transactions”. Accessed Aug. 31, 2016.
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