Can You Have T-bills in an IRA?

T-bills are short-term bonds sold by the U.S. Treasury Department. An individual retirement account (IRA) helps consumers save money for retirement in a tax-favored structure recognized by the Internal Revenue Service (IRS). There are no restrictions for buying Treasury Bills (T-bills) or other kinds of bonds in an IRA, though you should consider the benefits and disadvantages of doing so.

A bond is an investment or debt security that a government or company can issue to investors to raise money for various public service and business projects. In exchange, the bond issuer will pay you a specific interest rate regularly. And at the end of the set period, you will also receive your principal back when the bond matures.

Due to the nature of the bond, which usually guarantees regular payments over its lifetime, people sometimes refer to the investment as fixed income.

The different types of bonds that exist are based on the issuer and maturity period.

• Corporate bonds are issued via public and private corporations. Some of them are considered investment-grade, which means they have high credit ratings, and thus lower risk levels associated with them.
• Municipal bonds are issued by government entities, such as counties, cities, and states.
• High-yield bonds have lower credit ratings, higher associated risks, and, thus, higher rates of returns.
• U.S. Treasuries usually have the full backing of the U.S. Government. T-bills have the shortest maturity dates ranging from a few days to ​52 weeks​. Notes have a maturity period of ​10 years​, while U.S. Treasury bonds usually mature in about ​30 years​ but pay twice annually for that entire period. In addition, you also have the option of investing in Treasury Inflation-Protected Securities (TIPS). These bonds and notes have their principal that adjusts based on Consumer Price Index changes. And their maturity period can be ​five, 10, or 30 years​.

A conservative investor seeks to preserve capital assets. If you are financially conservative, you seek investments that offer guaranteed rates of return, provide moderate fluctuations in principal, or have a federal or insurance guarantee of some sort. The T-bill meets the objectives of a conservative investor.

T-bills are guaranteed by the full faith of the federal government. The T-bill provides a fixed rate of return as long as the bill is held until maturity. Should you need T-bill assets before maturity, the fluctuations for selling it on the secondary market are often minimal.

T-bills are short-term bonds. These short-term investments have lower interest rates compared to longer-term investments. Therefore, the T-bill is not suitable for an investor wanting to get as much as possible for assets.

However, an investor seeking to "park" assets in a short-term vehicle, may find T-bills a suitable option, while waiting to liquidate or place them in a different investment. In the T-bill, some interest is earned in the interim.

Now that you see why someone would or would not buy a T-bill in general consider whether it is appropriate for an IRA investment. If you are not taking distributions from the IRA, there is no reason to look at short-term investments unless you are parking assets. The money can grow in the IRA as much as you want without concern over annual tax issues.

Parking it in higher-paying investments helps grow assets. However, if you are conservative and feel that existing long-term interest rates are low, parking your money in a short-term T-bill gives you a time frame to re-evaluate the long-term rates within weeks or a few months.

An investor seeking to keep assets in conservative liquid scenarios within an IRA should explore laddering T-bills and Treasury bonds. The laddering method involves having different bonds with staggered maturity dates.

Staggering bonds with varying dates of maturity helps an investor get higher returns in long-term bonds while keeping a certain amount maturing regularly in the event distributions are required. The staggering method helps maintain a conservative, liquid portfolio in the IRA.

If you feel that investing in T-bill investments in an IRA won’t give you the returns you desire, you can opt for other kinds of allowed investments. These include ETFs, annuities, mutual funds, stocks, and UITs.

Alternative IRA options, such as private equity, real estate, bullion, cryptocurrency, and business startups, are worthy investments. However, assets, such as antiques, artwork, life insurance, and collectibles are not allowed. So, be careful about what you purchase.