Holding Alternative Investments in a Roth IRA

People assume retirement investments must be exchange-traded stocks, bonds, and mutual funds. Stock market volatility frequently intimidates retirement investors to the point that they simply do nothing and forego crucial retirement planning. Roth IRA account owners will be pleased to know there is an entire spectrum of alternative investments unrelated to the stock market available to them.

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Before opening a Roth IRA with the intention of holding alternative investments, be certain that your intended Roth IRA custodian is willing to work with you. Self-directed IRA custodians are a small but growing niche. These companies, NDTCO included, grant their account holders the power to populate their portfolios with the assets they believe in. However, IRS rules still apply for self-directed Roth IRAs. Let’s take a look at the applicable Roth IRA rules with regard to acceptable and prohibited alternative investments.

Acceptable Alternative Investments in a Roth IRA

Available alternative investments include:

  • Real Estate
  • Promissory Notes
  • Private Equity
  • Shares of a Business (Non S-Corp)
  • Oil & Gas
  • Precious Metals 

Prohibited Investments

With so many accepted Roth IRA investment alternatives, you may be wondering about what’s not allowed. Three prohibited investment types include:

  • Collectibles – This category includes artwork, rugs, antiques, metals, gems, stamps, non-marketable coins, alcoholic beverages, and certain other tangible personal property. Valuations of assets like these are often difficult to achieve on a regular basis and IRA rules demand regular account value reporting for tax purposes. Certain precious metals items may qualify as collectible items, which is why the IRS applied purity minimums to IRA-eligible coins or bullion.
  • Life Insurance – Because an IRA account is not a human being, it becomes difficult to own and administer life insurance.
  • Shares of an S-corporation – S-corporations follow specific IRS taxation requirements and the tax-deferred nature of a Traditional IRA or Roth IRA would go against those requirements.

For more information about Roth IRAs and the rules of self-directed investing, please don’t hesitate to contact New Direction Trust Company by giving us a call at 877-742-1270 or by sending us a message through the Client Portal.

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