“What can a self-directed IRA actually hold, and what’s off-limits?”
Self-directed IRA prohibited transactions are where most investors get into trouble, usually not on purpose. In our September live Q&A, guest John Bowens of Equity Trust Company and Laura Dohanes, CPA, started with the short list of things an IRA can never own, then who your IRA can’t do business with, and finally the much longer list of what it can hold.
Quick answer: The tax code tells you what an IRA can’t do, not what it can. It can’t hold collectibles (art, antiques, gems, most coins), life insurance or S-Corp stock. And it can’t do business with disqualified persons: you, your spouse, your parents and grandparents, your children and grandchildren (and their spouses), and entities you control 50% or more. That means no buying, selling, leasing, lending, services or personal benefit. Siblings, cousins, aunts and uncles aren’t disqualified.
Laura’s “no” list is short. Collectibles are out: art, antiques, gems, rugs, stamps, most coins. The exception is certain U.S. gold, silver and platinum coins, and gold, silver, platinum or palladium bullion meeting IRS fineness standards and held by the custodian, which is why precious metals are allowed. Life insurance can’t go in an IRA. And S-Corp stock is out, because an IRA isn’t an eligible S-Corp shareholder. Want your retirement money in a company you’ll run? That’s a ROBS conversation, which works differently.
As John put it, Congress wrote the rules to tell us what we can’t do, not to list what we can. “Self-directed” isn’t even a term in the regulations; it’s an industry label for having control and investing beyond Wall Street products. Some people believe you can’t hold real estate in an IRA. Nothing in the tax code bars real estate in an IRA; most big financial institutions just don’t allow it because of the administrative work. Laura remembers the first CPA who showed her one 20 years ago: “We thought it was illegal.”
The rules live in Section 4975 of the tax code, and they apply to IRAs, Solo 401(k)s and HSAs. They start with disqualified persons: anyone up and down your family tree. That means you, your spouse, your parents and grandparents, your children and grandchildren and their spouses, plus businesses and trusts that you (and they) own or control 50% or more. Your brother, sister, cousins, aunts and uncles are not disqualified.
Between your IRA and a disqualified person, the code prohibits buying, selling, leasing, exchanging, lending money, extending credit, providing services and personal benefit. John’s most common question: “I own $300,000 of land I’m going to develop — can I put it in my IRA?” No. Can you sell it to your IRA at fair market value? No. Sell it to your brother and have your IRA buy it from him? No. That’s a step transaction. And two more traps: when your IRA borrows for real estate, you can’t sign a personal guarantee (it must be a non-recourse loan), and if your IRA owns a vacation rental, you can’t stay in it.
The “yes” list is long: real estate and raw land, private notes and mortgages, syndications and private funds, LLC and LP interests, private company equity, precious metals, and cryptocurrency. The rules aren’t about the asset as much as the people and the benefit. Keep disqualified persons and personal benefit out of the deal, and the menu is wide.
Official IRS reference: IRS — Retirement Topics: Prohibited Transactions
You, your spouse, your parents and grandparents, your children and grandchildren and their spouses, your fiduciaries, and businesses or trusts that you or other disqualified persons own or control 50% or more.
No. You can’t contribute it, sell it to your IRA at fair market value, or sell it to a relative so your IRA can buy it. All are prohibited.
Siblings aren’t disqualified persons, so it can be allowed, but the deal must be at fair market value and for the IRA’s exclusive benefit.
Yes. Precious metals that meet IRS purity standards and cryptocurrency can be held through a custodian that supports them.
These answers come from our monthly open Q&A. Only newsletter members get the invite (real tax strategy for business owners, twice a week, no fluff).
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Guest: John Bowens, Director & Head of Education and Investor Success at Equity Trust Company, appeared as a guest. Custodians, including Equity Trust Company, do not provide tax, legal or investment advice.
Disclaimer: This article is for educational purposes only and is not tax, legal, or financial advice. Every situation is different. Talk to a qualified professional about your specific facts before making any decisions.
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