You may have heard it here, or anywhere across the financial web: with a Self-Directed IRA, you can have a lot of options for retirement investing. That means that an IRA gives you access to real estate assets, precious metals, tax liens, private companies, and even less-traditional retirement options like farm real estate and raw land. With this amount of freedom in a Self-Directed IRA, it’s tempting to think that you can just about invest in anything you want. Heck, some people even put cryptocurrency within a Self-Directed IRA!
But what about those rare occasions where there are limits to what investors can hold? With retirement assets, it’s especially important to learn the boundaries, because it means that you can avoid running afoul of regulations that could cost you tax penalties. Let’s explore what Self-Directed IRA investors can’t keep within their retirement accounts, no matter what they do.
What Investors Should Avoid in Self-Directed IRAs
For starters, a life insurance plan may feel like an investment asset, but since it’s not an investment, it doesn’t belong in a Self-Directed IRA. Because a life insurance policy is considered separate from investments—no matter how a life insurance salesman might word it to make it sound better—the truth is, no life insurance policy has any place within a Self-Directed IRA.
But this is just one example—and not a typical “investment,” either. What about the other items that many people regard as “investments” but don’t belong in retirement accounts?
- Collectibles, especially jewelry and gems, don’t belong in a Self-Directed IRA. Some people figure that because an investor can hold gold within an IRA, that means that something like a gold necklace might belong. This, however, isn’t the case, as there are certain limits to the types of gold, silver, and platinum you can keep within a Self-Directed IRA. Note that this category of collectibles can also include baseball cards, comic books, and similar items that many people might hold for speculative purposes.
- Wine. A lot of people collect wine—to the point of calling it an “investment.” However, because it’s so difficult to calculate the value of wine at any specific time, the IRS prohibits the use of wine within a Self-Directed IRA. Another potential problem is that investors typically keep wine stored on the premises, which makes it more of a personal investment than one that’s appropriate for a retirement account and all the separation it demands.
- Some limited types of gold coins. What happens if you have an approved, almost totally pure gold coin? There’s a good chance that it qualifies for a Self-Directed IRA under the right circumstances. But a gold wedding ring that might only be partial gold purity? That’s not a valid retirement investment. You’ll have to opt for specific gold coins and bars to make sure that you adhere to the retirement investment rules that a Gold IRA can hold.
Other Considerations for Avoiding Investments in a Self-Directed IRA
Although these are a good amount of the selections you can’t invest in with a Self-Directed IRA, keep in mind that any investment that you treat as a personal investment is considered invalid. That means that even if you hold real estate that is a valid investment, you can make it invalid by renting it out to a spouse, family member, or other “disqualified person.”