What Can a Self-Directed IRA Invest In?
Sunday, April 3, 2011 at 08:29PM | Staff Our last blog post entitled What is a Self-Directed IRA discussed the fact that all Individual Retirement Accounts are really self-directed accounts because the taxpayer/investor decides what financial institution to use as their IRA Custodian.
The IRA Custodian selected will, for the most part, determine what your investment options will be for your self-directed Individual Retirement Account. Certain IRA Custodians will permit a much greater variety of investment options, including non-traditional, non-publicly traded assets that are often referred to as alternative investments, such as real estate and real estate related assets.
Prohibited Investments
The Internal Revenue Code prohibits certain types of investments inside of an individual retirement account. The prohibited investments or assets are:
- Life Insurance Contracts
- Collectibles
In addition, although it is not a prohibited investment inside of an IRA, IRAs can not acquire stock in a Sub-S Corporation because it would cause the Sub-S Corporation to lose its classification as a Sub-S Corporation.
Permitted Investments
So, as you can see, very few investments options are prohibited by the tax code, which leaves virtually everything else on the table. The more common alternative investments inside self-directed IRAs include, but are not limited to, the following:
- Real estate
- Fractional ownership in real estate
- Real Estate Options
- Loans secured by Deeds of Trust
- Promissory Notes secured by Mortgages
- Tax Lien Certificates
- Limited Partnerships
- Limited Liability Companies
- Sub-C Corporations
Prohibited Transactions
There are also prohibited transactions in addition to prohibited investments. The prohibited transactions usually involve self-dealing and will be discussed in a later blog post.
