An IRA is a tax-advantaged retirement plan you can open with a financial company like a bank or stock brokerage that acts as a custodian for your account. Individual retirement accounts usually offer more flexibility than employer-offered plans like 401(k)s in terms of the types of assets you can buy in your account. The government places few limitations on what you can hold in an IRA, although the company you choose as your IRA custodian may limit you to picking from a list of approved investments.
Companies that offer IRAs usually let you stash your cash in interest-bearing accounts like certificates of deposit and money market accounts. Holding interest-paying accounts in an IRA can be advantageous. While interest is normally taxed as ordinary income, IRAs delay taxes on earnings until you tap into your account. With Roth IRAs, you generally don't owe taxes at all if you wait until retirement to cash out.
Stocks and Bonds
IRAs can hold investments like stocks, bonds, mutual funds, exchange traded funds and annuities. Your IRA custodian determines the specific investments you can own. For example, a mutual fund company might only allow you to invest in a list of approved mutual funds and stocks. Since allowed investment offerings and fees vary by custodian, it is important to comparison shop to make sure your IRA meets you financial goals.
Some IRA custodians offer self-directed IRAs that don't limit you to choosing from a list of approved investments. A self-directed IRA can hold anything that isn't prohibited by law, including all sorts of alternative investments like land, foreign currencies and gold. IRAs can hold single family homes, apartments, multifamily homes and any other type of real estate, but you have to avoid "self-dealing."
This means you can't use or live in properties held in your account yourself. Letting friends or family members use property owned by your IRA is considered self-dealing. Investments like real estate have low liquidity, meaning it can take a long time to sell them off. This can make it harder convert your account into cash when you need it.
Although an IRA can hold most types of assets, the Internal Revenue Service prohibits an IRA from holding collectibles, insurance policies and stock in S corporations. According to the IRS, collectibles include art, rugs, metals, coins, antiques gems and stamps. An exemption is made for gold and silver coins minted by the U.S. Mint; certain platinum coins; and gold, silver, palladium and platinum bullion.
- IRS: Traditional IRAs
- SmartMoney: Gold for Your IRA?
- Forbes: How To Invest Your IRA In Real Estate, Gold And Alternative Assets
- IRA Basics: What Types of Investments Can You Use in an IRA?
- U.S. Securities and Exchange Commission: Investor Alert: Self-Directed IRAs and the Risk of Fraud
- The New York Times: Tackling Real Estate in a Do-It-Yourself Approach to IRA's
Gregory Hamel has been a writer since September 2008 and has also authored three novels. He has a Bachelor of Arts in economics from St. Olaf College. Hamel maintains a blog focused on massive open online courses and computer programming.