8 Unusual Things to Hold in Your IRA

Typically when people think of an IRA or what you can hold in an IRA, they think of stocks, bonds, mutual funds, CDs, maybe even money markets. What a lot of people don’t know is that there are other things that you can hold in your IRA other than the usual suspects.

Some of the things that people would like to hold in an IRA but can’t are insurance policies, certain collectibles such as art, antiques, metals, rugs, gems, stamps, coins, or even maybe alcoholic beverages such as wines. 

Please see IRS Pub 590 for more information on what collectibles can’t be held in an IRA.  Unfortunately, none of those can be held in an IRA.  On the bright side here are eight things that can be held in your IRA.

1. Certain Gold and Silver Coins Minted by the US Treasury

These include the Gold Eagle and Silver Eagle Coins. You may also vest in high-quality gold, silver, platinum, and palladium bouillon.

2. Stock From an Initial Public Offering

Most are familiar with the letters “IPO.”  If a company has never issued equity before, it would be considered an IPO.  Since it’s an entirely new issue, there are certainly more risks involved.

3. Closely Held Stock

Private or closed corporation stock offerings are not available to the public on the open market. Normally, they are made to pre-qualified individuals. These offerings must comply with the securities Blue Sky laws in the state in which the offering is made. The number of individuals included in the offering cannot exceed the maximum stipulated by state law.

These offerings, usually made by corporations seeking capitalization, can be in any class of stock described in their prospectus. Many corporations act as their own registrar as well as transfer agents. They may or may not use market makers for their offerings. Purchases and sales are described in their offering materials, which you should study closely.

4. Real Estate Investments

If you have watched as much Flip That House as I have, you know that flipping a home can be a good real estate investment. But who ever thought you could hold that real estate in an IRA, right?  Here are some of the types of property that you can hold:

• Single-family and multi-unit homes

• Apartment buildings

• Co-ops

• Condominiums

• Commercial property

• Improved or unimproved land (leveraged or unleveraged)

You can use a special type of IRA to hold real estate called a self-directed IRA. You can use a company called Equity Trust to hold your self-directed IRA.

5. Limited Partnerships

A partnership is a type of unincorporated business organization in which multiple individuals, called general partners, manage the business and are equally liable for the debts of the business.

Other individuals, called limited partners, may invest in the business but are not directly involved in management. Limited partners are liable only to the extent of their investments.

Unlike a limited liability company or a corporation, partners share equal responsibility for the company’s profits and losses and its debts and liabilities.

The partnership itself does not pay income taxes, but each partner has to report their share of business profits or losses on their individual tax return. Estimated tax payments are also necessary for each of the partners for the year in progress.

General Rules Regarding Partnerships in a Self-Directed IRA or Real Estate IRA

Here are some general rules regarding self-directed partnership investments in your self-directed individual retirement account or real estate IRA:

• The partnership agreement must permit an individual retirement account or a qualified plan to be a partner.

• The partnership must comply with the appropriate state law, have a determinate life, and be assignable.

• The partnership subscription agreement must be signed by you as having been read and approved and will be executed by Entrust for your benefit.

Partnerships may be subject to unrelated business income (UBIT) and other taxes. It’s important to consult your tax advisor for proper direction.

6. Oil and Gas Royalty Interest

Minerals, royalties, and overriding royalties receive revenues from the production of oil and gas from a well without paying the drilling or monthly operating expenses from the well.

The term “royalties” can be used interchangeably to mean mineral interests, royalty interests, or overriding royalty interests. However, there is a difference between minerals and royalties and an even greater difference between overriding royalties and both minerals and royalties. The similarity between mineral interests and royalty interests is that both involve ownership of minerals under the ground.

Both receive portions of the income from the production of oil and gas. However, the difference is that the owner of a mineral interest also has the right to execute leases as well as collect bonus payments, whereas the owner of royalty interests does not execute leases or collect bonus payments.

7. Stock Options

Unless you work for a major corporation, you probably aren’t familiar with stock options.  Basically, a company will give their employees options on the company stock that can be redeemed, hopefully as a gain later on.  If held in an IRA, these gains could be deferred.

8. Notes or Mortgages

A note is a vehicle that is used to extend credit from one or more individuals or entities to another individual or individual’s entity.

There are two types of notes:

• Secured notes are backed by collateral, providing the lender increased assurance of return of the loan amount and interest, such as mortgages and deeds of trust.

• Unsecured notes are not backed by collateral. You might consider an unsecured note for perhaps a friend or a non-disqualified relative, but it is a higher risk—and sometimes reward—than a secured note.

Investing in Trust Deeds and Mortgage Notes

To clear up confusion, a trust deed, deeds of trust, and mortgage notes are largely the same investment, depending on the state that you reside in.

These notes may be either in first or subordinate positions and may be purchased from brokers or private parties. Usually, the documentation is recorded at the county recorder’s offices, and the title to the property is insured as instructed.

Disadvantages of These Investments

While it’s an interesting and unique list, one of the disadvantages of doing so is that most of these types of investments are illiquid.  From my personal experience, other than the gold coins, most of my clients have not attempted to hold any of these types of investments in their IRAs.

For those that are approaching the required minimum distribution age at 73, holding some of these illiquid investments will make it difficult to generate the cash that’s required to be taken out. And by not taking out the RMD, you are subject to the 50% penalty that the IRS will impose.

In addition to that, it may also be difficult to find a trustee who will be willing to hold these types of assets.  Many investment or brokerage firms are not willing to do the extra work to hold such a unique asset in a self-directed IRA.

Source: IRS Pub 590

Bottom Line: 8 Unique IRA Investments

IRAs offer more investment versatility than many realize. Beyond traditional assets like stocks and bonds, IRAs can accommodate unique investments such as US Treasury-minted coins, IPO stocks, closely held stock, real estate, limited partnerships, oil and gas royalty interests, stock options, and notes or mortgages.

However, while diversifying through these options can be enticing, it’s vital to consider their illiquidity, especially as one nears the mandatory distribution age. Failing to take out the required minimum distribution can result in hefty IRS penalties. Moreover, finding a trustee willing to manage these unconventional assets in a self-directed IRA might be challenging.