IRA Prohibited Transactions

• There are certain kinds of assets you cannot hold in your IRA. You cannot hold collectibles, most forms of precious metal, art or alcoholic beverages in your IRA. You also cannot hold any real estate you use for your own personal benefit. You cannot use your IRA to buy property from you or any closely related party, nor from any business entity controlled by you or a closely related property. You cannot commingle IRA assets with non-IRA assets. If you violate these guidelines, the IRS can determine the IRA void and consider you to have taken a distribution on the entire IRA. Taxes and penalties will apply, depending on whether your IRA is a traditional or Roth IRA.
  
  

Mutual Funds

• Mutual funds are pools of money. Investors combine their assets into a common pool of funds. The fund hires a manager to buy and sell securities on the investor's behalf. You can buy mutual funds with many investment objectives, from providing income to growth and income to safety of capital to aggressive growth. Fund investors pay a percentage of their fund assets each year to pay fund expenses. Some funds own thousands of securities. Mutual funds are an easy way for an investor to instantly diversify his portfolio among many securities with a single transaction.
  
  

Stocks

• A stock is a partial share of ownership in a corporation. When you own a stock in your IRA, you are part owner of a company. Your shares of stock entitle you to a prorated share in all future dividends the company issues. You are also normally entitled to vote for the company board of directors. You can purchase stock, or equities, from a stock broker, or directly from the issuing company. There is no requirement that stock in an IRA be publicly traded. You can own stock in any-sized company, publicly traded or not, in your IRA.
  
  

Bonds

• A bond is simply an IOU, or promissory note issued by a company or government the wants to borrow money. When you buy a bond, you are lending your money to the borrower. In exchange, the borrower promises to pay regular interest payments and a scheduled repayment of principal. Interest on bonds is taxable when not held in an IRA. However, you pay no tax on interest from bonds you hold within an IRA.
  
  

Self-directed IRAs

• Self-directed IRAs allow you to own non-traditional investments within your IRA. You can own rental real estate, farms and small businesses of almost any variety within your IRA, provided you observe the transaction restrictions. This is a specialized area of investment planning. If this appeals to you, consult a qualified professional with experience in this area.