Individual Retirement Accounts (IRAs) provide powerful tax advantages for retirement savings, but the IRS imposes strict limitations on what assets they can hold. Investing in prohibited items can lead to severe penalties, including the investment being considered a taxable distribution and a 10% early withdrawal penalty if you’re under age 59½.
It’s crucial to understand these rules to protect your IRA’s tax-deferred status.
Generally Prohibited Assets:
The IRS aims to prevent personal use or enjoyment of IRA assets.
Common prohibited investments include:
• Collectibles: This broad category covers:
o Artwork, rugs, and antiques
o Gems and precious stones (e.g., diamonds)
o Most stamps and coins (with specific exceptions for certain U.S. minted gold, silver, platinum coins, and highly pure bullion)
o Alcoholic beverages
o Certain other tangible personal property.
• Life Insurance Products: IRAs generally cannot hold life insurance policies. The key exception is annuity contracts, which are permitted as retirement income vehicles.
• S Corporation Stock: IRAs are not permitted to hold stock in S corporations.
• Transactions with “Disqualified Persons”: Beyond specific assets, you cannot engage in self-dealing with your IRA. This means you (or certain family members) cannot borrow from it, sell property to it, or use IRA funds for personal benefit.
Generally Permitted Assets:
Fortunately, IRAs allow a wide range of common investments:
