Not all investments are compatible with your IRA or qualified plan.
You are saving for retirement.
You have a 401(k), a 403(b), or another "qualified" plan sponsored by your employer.
You know there are limited investments for these employer-sponsored funds.
You want a little more freedom.
What can you do?
Consider setting up either a traditional IRA or a Roth IRA.
You have a greater variety of investments available.
These include mutual funds, stocks, annuities, bonds, unit investments trust (UITs), exchange-trade funds (EFTs), and real estate.
According to a recent Investopedia article titled “5 Investments You Can't Hold In An IRA/Qualified Plan,” the investment options are not without limitations.
The article reviewed a few common limitations.
Having adequate life insurance is a wise idea, especially if you have a spouse or children.
Typically, life insurance part of your IRA or qualified plan asset mix.
But is this limitation hard and fast?
Qualified plans can have an exception.
What is it?
It is referred to as the incidental benefit rule.
What does it allow?
The qualified plan can buy the life insurance for a given plan participant.
To pass muster, the death benefit amount must be “incidental” compared to the other funds in the plan.
Types of Derivative Positions
What do these include?
Those trades with undefined or unlimited risk.
When you think of derivatives, think of things like options, calls, and puts ... whether long or short.
Do you like furniture, porcelain, antique silverware, stamps, comics, baseball cares, works of art, gems, jewelry or fine wine?
Those are all great things.
But you cannot hold them in your retirement accounts.
Real Estate for Personal Use
Yes, you can hold real estate in an IRA.
There are limitations though.
What are they?
You cannot live in the property or receive rental income from it.
It cannot be your vacation home or even titled in your personal name.
All expenses and income must be directly deposited into your IRA.
The IRA cannot sell or buy property owned by certain relatives or by you as the account owner.
Although holding real estate or gas and oil interests within an IRA are allowed, many IRA custodians charge higher fees or choose not to offer such services.
This is similar to other collectibles.
Most coins made of precious metals or gold are not allowed.
There are some exceptions.
What are they?
The proof and non-proof American Eagle coins, non-proof American Gold Buffalo coins, proof and non-proof American Silver Eagles coins, Canadian Maple Leaf coins, and Austrian Gold Philharmonics coins.
Two main qualifiers? The coins must not be considered a collector's item and must have a pure mineral content.
Before you take action on your IRA investments you need to be sure the investment type is allowed.
An experienced financial advisor can help.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: Investopedia (March 31, 2018) “5 Investments You Can't Hold In An IRA/Qualified Plan”