A question I hear quite often. While traditional investments, i.e. stocks, bonds, etc. dominate the mast majority of retirement accounts in america, this by far, is not your only option, and in some cases, may not even be your best option.

The great news is that with only a few exceptions, your IRA account may invest in just about anything available to you. While the most common investments include public stocks, bonds, and mutual funds, alternative investments in private companies, IRA lending, and real-estate are becoming much more commonplace. Creative investors are waking up to the idea of alternative investments through an IRA account and are using their personal expertise to invest in all sorts of things; many of my clients hold numerous IRA accounts with investments in traditional securities, real estate, lending, and private equity. Talk about diversification!

Below are a few of the exiting alternative investments available to your IRA account.

Real Estate:

Want to buy a whole city block in Detroit and flip for major profits? Good news, your IRA can buy and hold title to real estate properties. While single family rental properties are most popular, your IRA may own commercial, raw land, agricultural, land leases, and so much more.

Private Companies:

Best friend starting a new business and in need of start-up capital? Your IRA can be an early investor in this new venture. Just like any other member, your IRA would fund the initial investment and become an owner in the company. Thus, entitled to investor/owner distributions and liquidation proceeds assuming the company is sold. This is very similar to purchasing ownership (stock) in a publicly traded company.

IRA Lending:

Have a dead-beat brother in-law with terrible credit and in need of a car, or better yet, know of a real-estate development project in search of financing? Your IRA can lend money to a person and/or business and receive principal and interest payments; essentially your IRA becomes the bank financing the deal. You as the IRA owner get to choose the borrower, and negotiate the principal amount, interest rate, length of the term, payment frequency and amount, and whether or not the note is secured by collateral. 

Precious Metals and Digital Assets:

Whether you’re stockpiling for the world economic collapse or just interested in the security provided by physical gold and silver, your IRA can buy and hold physical metals and/or digital assets. Your IRA account will essentially own the physical assets and, depending on the ownership type, may store them with a trustee or depository.

These are of course just four of the most common alternative investments allowed for IRA investments, but know that almost any investment opportunity available to you, may also be available for IRA investment.

Disallowed Investments:

As for what you cannot invest in, there are only two statutory disallowed IRA investments; these being life insurance contracts and collectibles. Whereas life insurance contracts are pretty self-explanatory, investment in collectibles can be a bit vague. According to IRC 590 and IRC § 408(m)(2), a collectible is defined as Artwork, Rugs, Antiques, Metals, Gems, Stamps, Coins (certain coins excluded), Alcoholic beverages, and certain other tangible personal property. Essentially, anything which has a market value which is hard to define, or varies greatly from one person to the next.

Another thing worth mentioning is that IRAs are also restricted from investing in S-Corporations. Not because it’s a disallowed asset, but rather because of how S-corporations are taxed. Tax law requires shareholders in an S-Corporation to be individuals, estates of deceased individuals and certain types of trusts. Although an IRA is a type of trust, it does not meet the law’s requirements to be a qualified S-Corporation shareholder.