IRAs give you access to a much wider range of assets than your workplace 401(k) or pension plan; however, there are still numerous rules you must abide by when opening one.
Your IRA cannot purchase real estate that would then be rented back out as this would constitute self-dealing and would therefore violate tax rules. So what else can it invest in?
Shares of an S Corporation
An IRA cannot invest in shares of an S corporation. S corporations are business entities that choose to pass along corporate income, losses, deductions and credits directly to shareholders for tax purposes rather than double taxation that often results from C corporations being responsible for taxable income.
An S corporation may only allow shareholders from individuals, estates and certain trusts to become shareholders in it. According to Tax Court case Swanson Administrative Services vs Commissioner, an IRA, custodial Roth or traditional IRA cannot become eligible shareholders of such an S corporation as this would violate IRC 4975’s self-dealing rule and could lead to serious tax implications both for them as individuals and their owner(s).
Private Stock
Private stock investments offer some investors greater returns, yet it’s essential that investors understand how the IRS and DOL view this type of transaction before proceeding with one.
An IRA cannot co-invest with disqualified persons or benefit from them in any way, so to comply with this rule it’s wise to only purchase shares from individuals or entities unrelated to yourself.
Additionally, it is wise to consult a securities attorney experienced in drawing up private offering paperwork and conducting private-stock sales to ensure all transactions take place legally and avoid prohibited transactions and possible audits.
Antiques
IRA guidelines typically allow more leeway when investing in real estate than stocks or mutual funds; nonetheless, there are rules which must be observed.
At stake here is that any personal benefits from your IRA investments cannot be used for personal gain; doing so would constitute self-dealing and result in penalties and taxes being assessed against you.
Imagine buying property with your IRA and then renting it out to someone you are related to directly; such transactions would constitute prohibited transactions. Furthermore, commission charges on properties owned by your IRA would also constitute prohibited transactions.
Firearms
The Provisional IRA relies heavily on supplies from America for arms, ammunition and explosives for its political and military strategy in Northern Ireland. American connections are essential in this regard.
The Irish Republican Army (IRA) possesses more than enough rifles and hand guns to continue its campaign indefinitely, as well as three tonnes of Semtex — an explosive.
Dealing in firearms within an IRA violates IRS regulations on prohibited transactions, designed to keep individuals who may benefit from your retirement account’s investments, known as disqualified persons, from benefitting directly.
Life Insurance
The Internal Revenue Service’s exclusive benefit rule restricts an IRA from investing in anything that would provide personal gain to you; for example, your IRA cannot purchase shares in your father’s cattle-breeding operation or lease raw land for hunting and fishing.
Your IRA cannot lend money directly to anyone – including family members – including yourself and anyone in your extended family. Furthermore, certain collectibles like artwork, stamps, rugs and antiques cannot be included either; although certain metals such as bullion may be allowed. Any time an IRA engages in prohibited transactions it will be treated as distributed and you may incur taxes and penalties accordingly.
Some Precious Metals
Precious metals are often an ideal diversifier for retirement portfolios; however, those investing via an IRA should exercise caution if using precious metals as their sole retirement strategy.
The IRS permits coins and bullion made of gold, silver and platinum to be placed into an Individual Retirement Account provided they meet certain fineness requirements. Coin/bullion must remain under the custody of a trustee/custodian at all times; its ownership cannot be retained at any point during ownership.
Precious metals should ideally be purchased through a Self-Directed Precious Metals IRA rather than traditional IRA. Not only does a Precious Metals IRA provide unique tax benefits, but a Self-Directed IRA also enables alternative investments that aren’t typically permitted with conventional IRAs.
