IRAs: Do You Have to Invest in Stocks or Bonds Only?

No!  It may be surprising, but it's true: No law demands that retirement plans be invested in stocks, bonds or mutual funds.  In fact, the government allows investors to put the money in their I.R.A.'s and Roth I.R.A.'s into almost anything, be it condominiums or airplanes.  A growing number of Americans are doing just that, though so-called self-directed I.R.A.'s that steer clear of mainstream investments.

Most self-directed I.R.A.'s are invested in real estate.  Four of the largest custodians of self-directed I.R.A's are Fiserv, Sterling Trust, Equity Trust and Entrust.  Sterling Trust and Equity trust provide advice and processing checklist for those considering using their I.R.A. to hold debt-financed real estate, which is subject to a non-recourse promissory note.

Note:  The biggest risk of using a self-directed I.R.A. is breaking the law.  Generally speaking, I.R.A.'s cannot be used to invest in collectibles (stamps etc..) and life insurance.  And accountholders may not personally benefit from their investment in any way other than making legal withdrawals after the age of 59 1/2.  This means that you cannot live in a house you bought with your I.R.A., or put rental income anywhere but back into the I.R.A.  Finally, any transaction with a lineal family - like children, parents and grandparents - are prohibited.