I don’t know about you but I hate restrictions. I don’t like it when banks restrict the number of transactions I can make a month without a financial penalty. I don’t like it when cell phone companies restrict the amount of minutes I use or the number of texts I send while charging me extra. I don’t like it when the government tells me how much I can contribute into a retirement account per year.
I dislike 401(k)’s for this very same reason. They only allow you to invest in pre-determined mutual funds and bonds. There is no room for out-of-the-box investing.
For this reason I prefer the flexibility an IRA provides. They allow me to invest in a wider range of securities like individual stocks, treasuries, ETF’s, CD’s, etc. You can invest in almost whatever you want, including investments that are considered unusual by 401(k) standards.
Now I’m not talking about crazy investments like vineyards and horse racing teams. What many people don’t know is that IRA’s allow you to invest in many unusual investments.
Why would you want to invest in the less common investment choices? For starters, it’s possible to find higher yielding and safer investments with some of these other options.
Traditional investments in stocks, bonds, mutual funds, etc will get you what you’ve always got. And what we’ve got is one headline after the other screaming about underfunded retirement accounts and how poor the elderly are.
I don’t want that to be me. I don’t want to have to live with my kids or rely on social security to fund my retirement years.
What I want to tell you about today is some of the less well known assets you can invest your IRA funds in to make sure your golden years are still golden.
Precious Metals. The IRS allows you to buy gold and silver coins minted by the US Treasury, as well as gold, silver, platinum and palladium bullion (bars). The American Gold Eagle and Silver Eagle are two such coins mentioned in the tax code. Other gold coins, can be eligible as IRA investments, though they must be at least 99.5% pure and be legal tender coins. This includes the Canadian Gold Maple Leaf coins and Australian Kangaroo nuggets. Hard assets like gold and silver coins act as a “storage of value”. So even if the coin isn’t legal tender anymore you can take the asset to another country who can pay you based on its weight and purity, thereby never losing all of its worth.
Real Estate. Today’s marketplace presents extraordinary opportunities to invest in under-valued real estate. What’s great about this option is that you are not just limited to buying and holding one type of real estate with your IRA. You can invest in:
• Apartment buildings
• Single-family homes, multi-family homes
• Foreign real estate
• Raw land
• Commercial property
Bear in mind homes purchased with IRA funds can’t be used for personal purposes. You can’t buy a home and live-in it. Or buy a beach house and rent it out to your family every summer. Any income you get from a rental property flows back into the IRA, which usually satisfies traditional investors who still want to buy stocks, bonds, and mutual funds. All the while your real estate investment appreciates and your equity stake grows tax free.
In addition real estate investors who “flip” properties with IRA funds can enjoy gains without having to pay capital-gains taxes. Traditionally, real estate investors who buy and resell property within a year with nonretirement funds have to pay capital gains taxes on the money they make from the sale. Investors who use funds from their IRA’s and roll the proceeds back into the IRA do not have to pay this tax.
Start Your Own Business. Most people don’t have thousands of dollars lying around to start their own business, but many do have enough stocked away in their retirement accounts. You can use the money you’ve saved up in your IRA to fund and start a new or buy an existing business. To be clear, this isn’t the same as borrowing from your 401(k), it’s a bit more complicated than that. It involves directing your IRA to make an equity investment in your business by buying company stocks and putting them in your IRA.
The trick is that you cannot own more than 50 percent of the business in which you invest, and you can’t have a controlling interest in the company. The IRS wants to make sure that you are using your IRA to build funds for your retirement and not trying to enrich your life now.
If you’re not the startup type, you can also buy an existing business. If the business makes any profit, that money will be taxed yearly but your equity stake still appreciates in your IRA tax-free.
Equipment Leasing. Many businesses need equipment but can’t afford to purchase it outright. Think of the expensive equipment required by construction companies, trucking companies or other manufacturers. Your IRA can lease equipment to any business for a flat monthly rate. The income goes back into your IRA which you can use to invest in traditional securities or other unusual asset classes like this!
The list above is very limited. You can actually invest in almost anything as long as you do not violate the “prohibited transaction” rules. IRS publication 590 details the few assets the government does not allow you to buy with your IRA. For example they won’t let you invest collectibles, antiques, stamps, life insurance contracts, gems and alcoholic beverages. As always it’s important to consult a financial professional for specific guidelines.
But follow the rules and you will have set you and your family up for a retirement full of activities and a lifestyle you can easily afford.
Keeping Money In Your Pocket,