Self-Governing IRA Rules and Prohibited Investments

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When you participate in an IRA (eg Traditional IRA or Roth IRA), a depositary or administrator will be the administrator of your account. You will find a large number of IRA custodians available and different custodians have different rules for the types of investments that you can include in your account. Some managers only allow clients to purchase CDs or investment funds, while others are more liberal and let you keep most types of registered securities in your account.

Still others, such as PENSCO Trust, allow almost any type of investment under the sun to be held in their IRAs as long as it is legal. You can use this type of IRA, usually a “self-directed” IRA, to hold real estate, oil and gas leases and other alternative investments for your IRA.

But even self-driving IRAs are not without limitations. There are different types of investments that the IRS is unconditionally prohibited within IRAs under all circumstances, including the following:

Prohibited investments in an IRA

Prohibited investments in an IRA

  1. Life insurance . While annuities are allowed, you cannot purchase whole, universal or variable universal life insurance in any type of IRA. This rule also applies to life insurance in qualified plans, although the Incidental Benefit Rule is an exception for very small coverage amounts.
  2. Certain types of derivatives trading . Financial derivatives include futures and option contracts on securities or commodities. Many of the more aggressive, self-governing IRA custodians will allow the use of derivatives in their accounts, but any type of transaction or function with unlimited or undefined risk, such as selling naked calls, is prohibited by the IRS. The reasoning is that that level of risk is inappropriate in an account designed to offer financial security during retirement.
  3. Collectibles and Antiques . Unfortunately, you cannot place that invaluable family heirloom in an IRA, nor the electric train set that your grandfather played as a boy. Furniture, wine, visual arts, stamps, precious stones, porcelain and earthenware, silver and dinnerware, jewelry, comic books, baseball cards and other collectibles cannot be titled in the name of every type of IRA.
  4. Your persooMolly Bloomijke residence . You may not hold any property that you use persooMolly Bloomijk (ie your principal residence, holiday home or reserve location in the city) within an IRA. Rental properties that you own are also prohibited. Other types of real estate companies, such as undeveloped land, may be permitted, but everything you use persooMolly Bloomijk is forbidden. This means that you cannot use IRA funds to buy yourself a first or second home or investment property from which you benefit directly in whatever sense . Similarly, if you manage rental or real estate investments, you cannot invest directly in a property that you manage because you receive a fee for your relationship with that property.
  5. Certain types of coins . In general, you cannot keep a single coin made of gold, platinum, or other precious metals in an IRA. To be admitted to an IRA, the actual currency value of a coin must exceed its value as a collector’s item. However, the IRS has a list of exceptions, including:
    • American Eagle coins that have never been in circulation
    • Proof of American Eagle coins
    • American buffalo coins
    • Canadian Maple Leaf coins
    • Australian gold philharmonic coins


Although you can use life insurance to fund many types of non-qualified plans, these IRA restrictions apply to all types of qualified defined contribution plans. It is also inadmissible to request a loan from your IRA to yourself or to another family member, or to carry out transactions related to properties on your IRA account with any direct descendant or ascendant (such as the renting a house to your parents).

Last word


Of course, an IRA is a popular way to prepare for your retirement and reduce your tax liability. But not every asset and investment vehicle fits into these accounts. If you have a self-directed IRA or a fairly liberal custodian, you will learn that the list of 100% restricted items is a short one.

Apart from these five types of investment – each with numerous exceptions – just about anything is permitted: stocks, bonds, CDs, annuities, investment funds, UITs, REITs, CMOs, treasury paper and brokerage firms, real estate and oil and gas interests. For more information about investments that cannot be placed in an IRA, consult your financial adviser.

What is the most unusual thing you put into your IRA? How has your administrator informed you when something is simply not allowed?


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