While regular IRAs typically only allow you to invest in traditional assets like stocks, bonds, mutual funds, and ETFs, self-directed IRAs (SDIRAs) open up the ability to invest in alternative assets through your retirement plan.

Invest in any alternative asset class with Carry IRAs. Learn more.

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What alternative assets can you invest in with a self-directed IRA?

The IRS has only documented what self-directed IRAs CANNOT invest in, which include:

  1. S corporation stock
  2. Collectibles
  3. Life insurance policies
  4. Prohibited investments

There is no official documentation from the IRS on what you’re allowed to invest in. If an alternative investment does not fall into these three categories, it’s likely allowed as an investment in a self-directed IRA.

Let’s go through the four types of investments an SDIRA is not allowed to make.

1. Life Insurance Contracts

IRAs cannot directly invest in life insurance contracts. This restriction is in place because life insurance contracts are considered to be primarily insurance products rather than investment vehicles designed for retirement savings.

2. Collectibles

IRAs cannot invest in collectibles, which include artwork, rugs, antiques, metals (with exceptions for certain types of bullion), gems, stamps, coins (with exceptions for certain U.S.-minted coins), alcoholic beverages, and certain other tangible personal property. The rationale behind this restriction is that collectibles are deemed to have speculative investment value and are not appropriate for retirement savings accounts, which are intended for long-term financial security.

3. S Corporation Stock

IRAs are generally prohibited from owning S corporation stock. This restriction is in place because S corporations have limitations on the number and type of shareholders, and allowing IRAs to own S corporation stock could potentially violate these rules.

4. Prohibited Transactions and Self-Dealing

IRAs are prohibited from engaging in certain transactions and activities that involve self-dealing, conflict of interest, or transactions with disqualified persons. These prohibited transactions include lending money or extending credit to oneself, certain family members, or other disqualified persons; furnishing goods, services, or facilities between the IRA and a disqualified person; and receiving unreasonable compensation for managing the IRA’s investments.

50 different types of alternative assets you can invest in with an SDIRA

  1. Real Estate
  2. Private Equity and Private Placements
  3. Cryptocurrency
  4. Promissory Notes and Debt Instruments
  5. Tax Liens and Tax Deeds
  6. Structured Settlements and Annuities
  7. Futures and Commodities
  8. Foreign Investments
  9. Crowdfunding and Peer-to-Peer Lending
  10. Hedge Funds and Managed Futures
  11. Structured Products
  12. Equipment Leasing
  13. Water Rights
  14. Timber and Timberland
  15. Oil and Gas Leases
  16. Farmland and Agriculture
  17. Intellectual Property
  18. Renewable Energy
  19. Livestock and Agriculture
  20. Mobile Homes and RV Parks
  21. Debt Instruments
  22. Private Loans
  23. Carbon Credits
  24. Mineral Rights and Royalties
  25. Livestock Breeding
  26. Film Production
  27. Music Royalties
  28. Franchise Ownership
  29. Distressed Debt
  30. Sports Contracts
  31. Health Savings Accounts (HSAs)
  32. Life Settlements
  33. Renewable Energy Credits (RECs)
  34. Water Infrastructure
  35. Venture Debt
  36. Digital Real Estate
  37. Social Impact Investments
  38. Shipping Containers
  39. Life Science Investments
  40. Royalty Trusts
  41. Timber Investment Trusts (TIMTs)
  42. Specialty Funds
  43. Equity Crowdfunding
  44. Socially Responsible Investments (SRI)
  45. Opportunity Zone Investments
  46. Carbon Capture and Storage (CCS)
  47. Secondary Market Purchases
  48. Employee Stock Ownership Plans (ESOPs)
  49. Litigation Finance
  50. Distressed Mortgage Notes

How alternative investments are made through an SDIRA

1. Open a self-directed IRA through a custodian

Per IRS rules, all retirement assets must be held by a qualified custodian for safekeeping and ensure that the account is in compliance with IRS rules. Major banks and brokerages typically only offer regular IRAs, but not SDIRAs. To invest in alternative assets in an IRA, you must find a qualified custodian that offers alternative assets that you’re interested in investing. Some custodians only specialize in certain types of alternative assets like cryptocurrencies or real estate, while some custodians like Carry allow all types of alternative investments (compare the best self-directed IRAs).

2. Fund your self-directed IRA

Once you open a self-directed IRA, you simply need to fund the account through a new contribution or by rolling over funds from other retirement accounts that you own. The contribution limit for 2024 is $7,000 ($8,000 if age 50+), but there are no limits on how much you can rollover.

3. Make investments

Once funds are in your account, the specific investment process depends on the custodian you are using. For example, with Carry’s Self-Directed IRAs, you can invest in any alternative asset that you want to hold in your SDIRA. While cryptocurrency investing can be done natively on the platform, other alternative investments require a simple form submission with details of your investment to kickstart the process. Once all the transaction details are confirmed, funds are sent from your SDIRA to make the investment.

Roth or Traditional

Like regular IRAs, there are two types of self-directed IRAs: Self-directed Traditional IRAs and self-directed Roth IRAs. Both can hold the same kinds of alternative investments; the main difference is the tax advantages offered.

  • Traditional IRAs are funded with pre-tax income. You get a tax deduction on your contribution and your investments grow tax-deferred until you take withdrawals in retirement. Your withdrawals in retirement are taxed as ordinary income.
  • Roth IRAs are funded with after-tax income. You don’t get any tax deductions on your contributions, but your withdrawals in retirement are completely tax-free.

Also read: Roth IRA Vs Traditional IRA: Key Differences & Similarities

Withdrawal rules

The withdrawal rules of self-directed IRAs are the same as regular IRAs.

  • Traditional IRAs: You can start taking withdrawals once you reach the age of 59½. Early withdrawals are hit with a 10% early distribution penalty plus income taxes.
  • Roth IRAs: You can withdraw your contributions only at any age without taxes or penalties. However, to withdraw earnings from your account, your Roth IRA must be at least 5 years old in addition to you being at least 59½ years of age.

Note: A Traditional IRA has required minimum distributions (RMD). You must start taking withdrawals once you reach the age of 73. Roth IRAs have no RMD rules and can be kept compounding for as long as you’re alive.

Start investing in alternative assets with Carry IRAs. Learn more.