Self-Directed IRA Investment Options
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A self-directed IRA can hold almost any asset class the IRS hasn’t expressly prohibited. The most common investments are real estate, precious metals bullion, private placements (LLCs, LPs, private stock), and secured or unsecured promissory notes. Prohibited investments are limited to life insurance contracts, S-corporation stock, and collectibles such as artwork, antiques, gems, stamps, and most non-bullion coins.
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Real Estate Investments:
- Real Estate (Rental Properties, Commercial and Undeveloped Land)
- Tax Lien Certificates
- Leases & Lease Options
- Like & Unlike Exchanges
Debt and Contract-Based Investments:
- Secured and Unsecured Notes (Trust Deeds and Promissory Notes)
- Contracts of Sale
- Factoring
- Accounts Receivable
- Commercial Paper
Business and Financial Investments:
- Private and Public Stock, Bonds, and Mutual Funds
- Precious Metals
- LLC’s and LP’s
- Partnerships
- Joint Ventures
- Private Placements
Although this is not all encompassing list, some examples of prohibited assets in an IRA include:
- Artwork
- Rugs
- Antiques
- Metals
- Gems
- Stamps
- Coins
- Alcohol
- Tangible Personal Property
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Real Estate
Investors use SDIRAs to buy single-family rentals, duplexes, multi-family buildings, commercial property, raw land, fix-and-flips, and tax liens. The IRA can buy in cash or finance with a non-recourse loan. All rent and capital gains return to the IRA. Disadvantage: properties require ongoing maintenance and management, and all expenses must be paid from the IRA.
Notes
Your IRA acts as a private lender, holding secured notes (backed by real estate or equipment) or unsecured notes (higher rate, no collateral). The borrower makes scheduled payments directly to the IRA. Notes are favored by investors seeking predictable returns and minimal time investment.
Precious Metals
Gold, silver, platinum, and palladium bullion meeting IRS fineness rules can be held in an SDIRA through an approved depository. Common holdings include American Eagles, Canadian Maple Leafs, PAMP Suisse bars, and approved rounds.
Private Placements
SDIRAs can invest in private LLCs, limited partnerships, syndications, real estate funds, and private company stock. These offer potentially higher returns than public markets but with reduced liquidity and a greater due diligence burden.
FAQ's Regarding Alternative IRA Investments
To to clear, what can I invest in with a self-directed IRA?
A self-directed IRA can hold real estate (rentals, commercial property, raw land, tax liens), precious metals bullion meeting IRS fineness rules, private placements (LLCs, LPs, private stock), and secured or unsecured promissory notes. Each category requires a Direction of Investment submitted to your custodian; the IRA, not you personally, holds title.
How does real estate work inside a self-directed IRA?
The IRA buys, owns, and sells the property in its own name. All rent flows to the IRA tax-deferred; all expenses are paid from the IRA. You and disqualified family members cannot use the property personally. Common holdings include single-family rentals, multi-family buildings, commercial space, raw land, and tax liens. See our Real Estate IRA Quick Hints for details.
What are debt and contract-based IRA investments?
Debt and contract-based investments in a Self-Directed IRA (SDIRA) allow your retirement account to act as a lender or financier rather than an equity owner. Your SDIRA can lend money to third parties in exchange for structured repayment terms with interest, which grows tax-deferred or tax-free within the account. Learn more by visiting our page on investing in promissory notes.
Can I hold precious metals, private placements, and LLCs in an IRA?
Yes. Gold (99.5%+), silver (99.9%+), platinum, and palladium (99.95%+) bullion held with an approved depository all qualify. LLCs, limited partnerships, private company stock, syndications, broadly referred to as “private placements”, are common SDIRA investments. The IRA holds the membership interest or shares directly; distributions return to the IRA tax-deferred. Learn more by visiting our investing in precious metals page.
What investments are specifically not allowed in a self-directed IRA?
The IRS prohibits three categories outright: life insurance contracts, S-corporation stock, and collectibles. Collectibles include artwork, antiques, gems, rugs, stamps, alcoholic beverages, and most non-bullion coins. Attempting to purchase a prohibited asset is treated as a deemed distribution of the purchase amount, taxable as ordinary income plus a possible 10% early-withdrawal penalty.
How do I choose the right investment for my self-directed IRA?
Match the investment to your expertise, time horizon, and liquidity needs. Real estate suits investors comfortable with property management. Notes suit investors who want passive cash flow. Precious metals suit investors seeking to hedge against inflation. Private placements suit investors having personal knowledge and experience within the business space. Diversify across two or three categories rather than concentrating on only one, always perform thorough due diligence, and never invest in anything until you feel satisfied and are comfortable with the investment.