Prohibited Investments with your Self-Directed ARI

Investments that are prohibited with the self-directed IRA have been enlisted. Section 408 clearly delineates the list of investments that are prohibited with your Self-Directed IRA and the exceptions that are allowed.

A brief overview of the same is provided here to guide your investment path to optimal benefits.

Life Insurance Contracts

Life insurance policies have been excluded from the list of potential investments. This decision was triggered by the fact that the growth in this sector is not as phenomenal as the growth in real estate, bonds and other fast-paced investment vehicles. Life insurance policies are filled with other types of risks that depend on fate and therefore cannot be relied upon to give you consistent returns in the evening of your life.

Collectors’ items

Works of art of all kinds – Works of art by prominent and established artists bring in incredible amounts of money. However, the rage felt at one point in time cannot be expected to continue over a long period of time. Art is timeless. However, with the emergence of promising new artists on the horizon, the work of art on which your investment has been placed may experience a decline.

Any alcoholic beverage – Alcoholic beverages of any kind have been excluded from the investment list. Alcohol may be subject to any restrictive legislation over a period of 20 to 30 years, which may result in a substantial depreciation of the investment value. A pensioner may be concerned that unfavourable government legislation or other socio-political conditions have prevented his money from increasing in value, and his dream of a seemingly rosy retirement has been shattered.

Any carpet or antique – An antique carpet or piece of any kind is prohibited. Items can gain or lose value, putting a stop to the uninterrupted growth of money.

Gems of any kind and certain metals – Metals refer to gold and silver jewelry. Precious metals such as platinum, etc. are not listed. These exceptions are covered by Title 26, Section 408 (m) (3) (A) and Title 31, Section 5112 (k).

Stamps and certain types of collectibles – Stamps and collectibles may not be used as investment items. Collector coins are special coins issued to commemorate a particular occasion. These coins are widely advertised in strong terms in infomercials. High quality precious metal investment coins do not fall into this category because they are issued by the Treasury to promote investment.

Trading of certain types of derivatives

High-risk transactions such as financial derivatives such as futures and options contracts on commodities or securities are not authorized by most custodians. Even the most aggressive custodians prohibit the sale of bare calls because they carry unlimited risk and are therefore not suitable for a retirement account.

Personal Residence

Your Self-Directed IRA account cannot be used to finance the residence you personally use. Nor are you allowed to invest this money in rental properties. Although you can purchase undeveloped land, any property you use personally cannot be financed through your Self-Directed IRA account.

Now you have developed a good idea of what is excluded from the list of investment options for the Self-Directed IRA. This will help you better plan your investment for optimal returns after retirement.