Working Americans almost all look forward to retirement, but the fact is, retirement these days isn’t as sure a thing as it used to be. In fact, almost half of retired Americans are considered to be economically vulnerable, and about one in four Americans think that they will have to work at least until the age of 80 to retire. One of the ways that many people do start preparing for retirement is to open an individual retirement account (IRA), but there are rules about what an IRA owner can and cannot invest in with it.
What You Can Invest in With an IRA
- Stocks: This is actually suggested for an IRA investment. Investing in the stock market with an IRA is absolutely allowed by the IRS.
- Bonds: Bonds are also something that people can invest in with their IRAs and are allowed to. Basically, a bond is an IOU offered by a company that is paid back at a later date with interest
- Real Estate (with Self Directed IRA Lending): This one is tricky and can only be done with an IRA non recourse loan. With self directed IRA lending, the non recourse loan agreement (this is a secured as opposed to unsecured loan) basically works like this: a non recourse lender gives the loan to the borrower, who puts up real property as collateral. The IRA owner cannot benefit from the purchase until retirement.
What You Cannot Invest in With an IRA
The IRS does have pretty strict guidelines that dictate what an IRA owner cannot invest in with the IRA. Here are a few examples:
- Life Insurance: Life insurance generally cannot be held under an IRA. This includes most types of life insurance plans. There are exceptions, but basically the life insurance plan can’t be more than half of the employee’s contributions to the IRA.
- Collectibles and Antiques: The IRA typically doesn’t allow funds from an IRA to be invested in collectibles and antiques. These include items like rugs, artwork, stamps, and other types of personal property. There may be a 10% additional tax on early distributions for collectibles.
- Coins: Coins are also on the list of things that an IRA owner cannot invest in, but there are a few exceptions. The exceptions are usually for coins that are made of precious metals.
Do you have any questions about what an IRA can and cannot own? Feel free to ask us in the comments section.