If you want to hold more exotic investments in your Roth IRA, it's possible — as long as you are careful.
One of the most popular investment accounts is the Roth IRA. A Roth IRA allows you to save money for retirement in a way that allows it to grow tax-free. While you make IRA contributions with after-tax dollars, your earnings aren't taxed later when you withdraw them. This can be an advantage if you are worried about higher tax rates during your retirement.
While many investors recognize that it's easy to hold stocks and bonds in a Roth IRA, there are those who help to see better returns from other assets. This is where the flexibility of the IRA comes into play. You might be surprised to discover that you can hold the following 3 asset types in your Roth IRA:
1. Real Estate
It's possible to hold real estate in your IRA, as long as you follow certain rules. You'll need to make sure that you aren't managing the properties yourself, and you can't lend money to your Roth IRA with the intention of covering property expenses. You also can't take depreciation deductions, or stay in your IRA-held property. There are other restrictions as well, so you want to make sure you understand them before you invest.
While there are a number of restrictions, you do stand to make a great deal of tax-free money if the property in your Roth IRA appreciates quite a bit over time.
2. Gold and Other Precious Metals
Investing in gold through a Roth IRA is another possibility. You can also invest in other precious metals, such as silver. As with real estate, there are restrictions associated with holding physical gold in your Roth IRA. While you can invest in gold stocks and other related assets, it's also possible to hold gold and silver coins — certain types, that is — in your Roth IRA.
Since the capital gains rate on physical gold is 28%, the same as the collectible rate, being able to avoid that with the help of tax-free Roth IRA earnings can be a powerful draw.
3. P2P Loans
If you are interested in P2P lending, it's possible for you to hold those notes in a Roth IRA. Lending Club offers you the option to open a Roth IRA through their site, and keep your P2P portfolio in it. With returns that sometimes beat the stock market — especially if you are willing to take a risk on someone with less than stellar credit — the tax-free growth can be a real advantage.
Opening a Self-Directed Roth IRA
In many cases, most “traditional” IRA custodians won't allow you to hold “exotic” investments like physical gold and real estate. Many brokerages and banks prefer you to focus on easier to handle investments like stocks and bonds. In order to hold some of the less traditional assets in your IRA, you are required to find someone who is willing to allow you to open a self-directed Roth IRA.
You can also get around some of the difficulties by choosing to hold ETFs and REITs in your Roth IRA. You can still get exposure to some of the more exotic IRA assets, but without all of the requirements that can hem you about.
Anytime you decide to hold something a little less traditional in your Roth IRA, it's a good idea to get help managing your account. That way, you can be sure to adhere to the rules made by the IRS.