An individual retirement account (IRA) is a long-term, tax-advantaged saving plan overseen by the Internal Revenue Service (IRS). Failure to comply with IRS regulations can result in substantial taxes and penalties being assessed to your account.
Function of an IRA
An IRA is a long-term, tax-deferred savings account that can be invested in all publicly traded securities and in some additional outside investments such as gold and silver bullion.
Benefits of an IRA
In addition to receiving a tax deduction in the years you contribute to an IRA, your investments grow tax-deferred until distribution.
In almost all cases, collectibles are prohibited investments in an IRA. The only allowable collectibles are certain coins minted by the U.S. Treasury. Collector cars are therefore excluded from being placed in an IRA.
Penalties on Prohibited Investments
Any collectibles that are purchased with IRA funds, or deposited into an IRA, are considered distributions, and are therefore taxable at ordinary income rates and are not considered as being inside the IRA.
Additional Penalty Taxes
If you take an IRA distribution before the age of 59 1/2, including a distribution caused by an investment in collectibles, the IRS will levy an additional 10 percent early-withdrawal penalty on your distribution.
John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.