Can an IRA Invest in Non Marketable Securities?

by Leslie McClintock
Diversified IRAs can maximize earnings while giving you acceptable safety.

Diversified IRAs can maximize earnings while giving you acceptable safety.

Many investors become dissatisfied with returns available in conventional investments, and eventually begin thinking beyond the traditional individual retirement arrangement allocations to stocks, bonds and mutual funds. Yes, you can invest an IRA in non-traditional assets, including unmarketed securities and real estate -- but you must understand the rules very well.

Prohibited Transactions

Generally, you can invest IRA assets in anything you want, as long as you avoid engaging in a few transactions specifically prohibited by Congress. You cannot lend money to yourself from an IRA, nor to any immediate family members, or any entity controlled by yourself or an immediate family member. You cannot invest in alcoholic beverages, collectibles, jewelry or most precious metals. You cannot invest in property for your own use, or that you intend to use personally later.


The strategy of using IRA assets to invest in non-traditional assets that you can personally control is called the "self-directed IRA." Some possible investments in a self-directed IRA include farms, ranches, closely-held stock in smaller corporations, small businesses and rental real estate.


To open a self-directed IRA, you would create a corporation or limited liability company by filing the appropriate forms, or articles, with the office of the secretary of state in your state. You would then draft a set of bylaws appointing yourself as the management authority for funds in the corporation. Then you open a business checking account and direct your IRA or 401k trustee to roll the funds over directly into your bank account. You then control your bank account, and use the money to invest as you see fit, provided you do not engage in prohibited transactions. The money within your company will grow tax-deferred, and still retain all the benefits of having an IRA.


Businesses are risky ventures. You may wish to carefully consider the difference in risk between holding a fund or group of mutual funds in your IRA invested in stocks, bonds and mutual funds with hundreds of different securities, or using a self-directed IRA with just one or two business ventures. Also, if you make a prohibited transaction, the IRS could disallow the entire IRA, charging you income taxes and possible penalties on the full amount of the IRA.

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