When you read up on Self-Directed IRAs at places like American IRA, you might be impressed with just how many investment vehicles and assets you can own in them. There is, after all, a lot of freedom to enjoy when you direct your own IRA. But does this mean you have unlimited freedom? Of course not. To realize the tax benefits and protections of a Self-Directed IRA, you do have to make sure that you follow the rules. And part of following the rules means you’ll have to understand what you can’t own in a Self-Directed IRA.
The good news? The list of what you can’t own is very limited. There are far more options for owning assets in a retirement account than there are assets you can’t own within one. Even so, it’s a good idea to better understand what you can’t use in one of these accounts if you’re going to get the most out of yours. Here’s a list you’ll want to keep in mind.
- Life insurance. Life insurance might feel like an investment asset, but since it’s not technically an investment in the traditional sense, it doesn’t make sense to hold it within a Self-Directed IRA. And since you’re not allowed to per the IRS, that pretty much settles it. Your life insurance is considered separate from investments, no matter what a life insurance salesman might tell you, so it’s important to remember that you can’t keep life insurance within a Self-Directed IRA.
- Jewelry and gems. You might be familiar with the fact that you can hold some precious metals within a Self-Directed IRA. So why can’t you hold a gold necklace in one, as well? Well, these fall closer to the collectible side of the equation, and collectibles are not investment assets that are considered valid within a retirement account.
- Collectibles. Speaking of collectibles, what can’t you hold within an investment account? A collectible like a Mickey Mantle rookie card would be considered a clear collectible, even if you believe it has investment value. You can always invest in one yourself in your personal belongings, but it will be subject to the same regular taxation as anything else you might hold personally, and not in a retirement account. Other collectibles, not just baseball cards, would also fall under this category. This is true of fine art as well.
- Alcoholic beverages. A wine collection might be your proudest and most intimate investment—after all, how many investments do you keep in your cellar? However, as something more akin to a collectible, alcoholic beverages such as wine collections would not be considered valid retirement investments.
- Certain gold coins and bullion of inconsistent or insufficient purity. Although you can own precious metals within a Self-Directed IRA, they have to be under specific purities and types. For example, it’s easier to tell the value of an approved gold coin than it is a gold bracelet. That’s one reason there are limits to the types of precious metals you can keep within a Self-Directed IRA. However, you shouldn’t let this fact discourage you from keeping precious metals within an IRA—you can do so as long as you follow the rules.