The IRS prohibits any type of derivative trading that involves unlimited or indefinite risk, such as issuing short calls or differential ratios. Collectibles such as works of art, carpets, antiques, metals, gems, stamps, coins and alcoholic beverages cannot be held in these accounts. The IRS doesn't have a list of “approved investments” for self-managed IRAs, but what it does have is a list of types of investments, transactions, and prohibited situations where you don't want your IRA to participate. Investments that aren't allowed in an IRA are types of investments that you won't be able to complete with the money in your IRA.
Prohibited transactions are actions that cannot be completed with this account. This includes things like sending you cash from your IRA, using it as collateral for a bank loan, buying property with it, etc. While Congress imposed strict prohibitions on some IRA investments (for example, in insurance), it did not pay the same attention to other asset classifications. The basic investment vehicle for each of these plans is an IRA, and investment restrictions apply equally to all types of IRAs.
With the exception of American deposit receipts (ADRs) and nationally sponsored mutual funds that make investments abroad, IRA account owners must restrict investments to the continental United States. The IRA law doesn't prohibit investing in real estate, but trustees aren't required to offer real estate as an option. These are debt issues that have received credit ratings below investment grade, which may reflect short-term risk or serious long-term financial problems in a company or a sovereign state. Any repair, improvement, or maintenance must be done by a remunerated, non-disqualified person to avoid any unfair advantage for your IRA investments.
But what about investments outside the United States or in private placements and real estate? Are these viable options for an IRA? What about limited liability companies or options? Can a customer legally make these investments? Are alternative commodities, personal loans, or mortgages acceptable? And because the rules, oversight and enforcement procedures governing collectibles and other tangible assets such as investments are not as clear as the general surveillance of securities and mutual funds by the SEC and other agencies, the latter offer more leeway for IRA owners. However, to ensure that retirement accounts are used “appropriately for long-term savings and investment,” section 408 of the IRC sets some limits on the types of investments that can be held within an IRA. Similarly, an IRA owner should be careful not to pay non-IRA investment management fees or financial planning fees with IRA assets (since the IRA must only pay its own advisory fees). Often, people choose to open an IRA along with their work-backed retirement plan, as Roth IRAs have access to a wider range of investments.
In addition, under the Code, both accounts run by participants and IRAs cannot invest in collectibles, such as works of art, antiques, gems, coins or alcoholic beverages, and can only invest in certain precious metals if they meet specific requirements. The additional complications that arise with the various types of alternative investments in an IRA stem from the fact that, technically, an IRA is an entity separate from the owner of the IRA who will ultimately use and benefit from the money. .