The rules governing IRA investments include restrictions on investments such as collectibles and real estate; however, alternatives may still be allowed as long as they do not violate any prohibited transactions or generate unrelated business taxable income (UBTI).
IRAs can invest in precious metals through ETFs that track specific commodities. While such investments may generate annual income tax issues that need to be addressed, IRA owners should note they could potentially generate annual income tax issues themselves that must be dealt with accordingly.
Physical ownership
Though IRAs can invest in alternative assets, such as artwork, antiques, stamps or precious metals that do not meet purity standards; life insurance or foreign currency investments; nor can IRAs engage in self-dealing when transacting between their account and disqualified individuals or entities.
An investment by your IRA that involves you or any disqualified persons holding 50% ownership or more is considered prohibited and includes relatives, partners and entities associated with either yourself or the custodian of your IRA.
An exception exists for precious metals: an IRA may invest in American Eagle (AE) gold coins minted by the Treasury Department as well as silver bullion coins issued by this organization. Under current PLR governing these investments, rules prohibiting ownership by an IRA do not apply when gold held by an independent trustee – creating an important precedent that could allow IRAs to invest in business ventures like pizza parlors, gas stations, cattle ranches, solar energy businesses or franchises.
Futures contracts
Futures contracts, commonly referred to by their name “futures contracts”, are agreements to buy or sell an asset at a specific future date for an agreed-upon price, acting as derivative instruments and commonly used for both hedging and speculation purposes. An IRA may hold futures contracts provided they have access to a brokerage account approved to trade futures contracts.
An ETF that tracks the value of precious metals provides a way for investors to avoid federal income tax issues associated with owning physical coins and bullion within an IRA, but they will need to report annual capital gains on Schedule K-1 instead of Form 1099 depending on its structure.
As with any investment, trading futures in an IRA is risky and should only be attempted with guidance from a financial professional. Before considering futures as an option for your IRA investment portfolio, carefully read and review the Commodity Futures Trading Commission risk disclosure document as well as consider your individual circumstances including risk tolerance and number of years remaining until retirement.
Individual securities
Individual securities can play an essential role in building your retirement portfolio. They include bonds, mutual funds, exchange-traded funds (ETFs), annuities, unit investment trusts and real estate. Individual Retirement Accounts (IRAs) may also invest in derivatives – contracts that based on price changes of assets like commodities, currencies, interest rates or Treasury notes;
IRAs can hold nearly every type of investment, with some notable exceptions such as investing in collectibles or certain alcoholic beverages; additionally, life insurance policies cannot be owned through an IRA.
Investment in precious metals may be attractive to some IRA owners, but you should carefully consider your liquidity needs when doing so. Many traditional IRAs require annual required minimum distributions (RMDs) once their owner reaches age 72 – especially if your gold holdings require RMDs each year. Liquid investments like stocks and mutual funds tend to provide more opportunity for RMD distributions than inflexible bullion.
Alternative investments
Alternative investments differ from traditional investments in that they tend to be less liquid; some must be sold only after finding a buyer and negotiating the deal, which may take more time and incur higher transaction costs than buying the asset directly. Furthermore, some alternative investments offer unpredictable returns with greater potential risks of loss.
Alternative investments tend to be less regulated and subject to greater fraud risks than publicly traded securities, making them harder to monitor and compare against traditional investment vehicles.
IRA owners may invest indirectly in precious metals through mining company stocks or mutual funds holding gold ETFs, although prioritizing tax advice before investing any substantial sums; returns are determined solely by price fluctuations, not including income streams such as interest or dividends.
