Saving for retirement is a goal with a limited number of ways to meet it. Did you know that your IRA investment options extend beyond stocks, bonds, and mutual funds? You have more choices than think.
An IRA (Individual Retirement Account) is just a tax shelter. You use it to store money for retirement, so it can grow tax-free. You see, when you open an IRA and fund it, the money just sits there in the form of cash. Some banks or brokers may offer an interest rate on that money, some don’t. But with rates at all time lows, that money won’t grow very fast. In order to boost that growth, you need to invest it in other assets. Thankfully, the IRS gives you some leeway with all the IRA investment options available.
That doesn’t mean you need to invest in each one. There is nothing wrong with taking a nontraditional approach when investing your retirement money. Just make sure you understand the costs and risks associated with any investment before you begin. And do your homework before jumping into something new.
What’s Not Possible
Before you get started with what is possible, here is what the IRS says you absolutely can NOT invest your retirement money in:
- Life Insurance – term life, whole life, variable life, any type of life insurance is not an option
- Most Collectibles – includes artwork, rugs, antiques, certain metals, gems, jewelry, stamps, certain coins, alcoholic beverages, toys, and other tangible personal property
That idea of furthering your wine collection with retirement money is officially off the table.
Possible IRA Investment Options
Now that you know what you can’t do, here are the investment options available to you:
- Cash – basic savings or money market account
- CDs – certificates of deposit
- Stocks – any publicly traded stock
- Bonds – includes corporate, municipal, federal, and foreign bonds
- Mutual Funds – all mutual fund types are possible
- ETFs – exchange traded funds
- Precious Metals – includes certain U.S. gold and silver coins minted by the Treasury Department, certain platinum coins as well as certain gold, silver, palladium and platinum bullion
- Real Estate – apartments, single family homes, commercial property and undeveloped land
- Secured and Unsecured Notes – mortgages and deeds of trust as well as other certain note options
- Private Stock – stock of privately held companies
- Limited Liability Companies
- Private Limited Partnerships
- Partnerships and Joint Ventures
Using A Self-Directed IRA
Most people who have IRAs stick with the top six IRA investment options available (cash, CDs, stocks, bonds, mutual funds, ETFs), which makes sense. They are all popular, easy to buy, and fairly easy to understand.
As soon as you delve into the other possibilities, setting up and maintaining the IRA and the assets inside it become more complex and costly. A special type of IRA is required called a self-directed IRA. It’s usually set up by an IRA trustee that specializes in alternative investments.
For the right person, it may be a better option. For instance, an expert in real estate might take advantage of their knowledge and invest some of their retirement savings in property. But you can forget the idea of buying your house with retirement money. It’s not allowed. The IRS has rules around directly benefiting from IRA investments, like living in the property.
Sometimes the best thing to do is stick with what you know. Just because the IRS lets you invest your retirement money in something doesn’t mean it’s a good idea. If you happen to see something that intrigues you, discuss your options with a tax professional, find a reputable trustee and double-check their fee schedule.