Prohibited investments in an IRA or 401 (k), works of art, rugs or antiques, metals or precious stones, stamps or coins, alcoholic beverages, any other tangible personal property specified by the Secretary of the Treasury. Many people confuse prohibited investments with prohibited transactions. The two are pretty different though. Prohibited investments are assets that you can’t invest with IRA funds.
Prohibited transactions are actions you can’t take with your IRA or its assets. According to IRS guidelines, if your IRA engages in a prohibited transaction, your IRA will cease to exist. A prohibited transaction is the improper use of IRA assets by the IRA owner, beneficiaries, or a disqualified person. In general, a prohibited transaction in an IRA is any improper use of an IRA account or an IRA pension by the IRA owner, their beneficiary, or a disqualified person.
If an IRA owner or their beneficiaries make a prohibited transaction involving an IRA account at any point in the year, the account is generally no longer an IRA from the first day of the year. An IRA owner who discovers a collectible or antique worth thousands of dollars at a flea market won’t be able to protect the tax on the profit from selling that asset under an IRA or other retirement plans. Although IRAs used to be limited to owning American Eagle gold and silver coins, IRAs can now invest in IRS-approved gold, silver, palladium, and platinum bars and coins. As with other types of collectibles, most coins, such as those made from gold or precious metals, are not allowed in an IRA plan.
The list of investment instruments that cannot be placed in an IRA or a qualified plan should not be confused with the list of prohibited transactions that cannot be made with these accounts, such as when you borrow money from an IRA. If my IRA wants to buy a property and use the IRA as a down payment and take out a loan, that loan must be a non-recourse loan.