When it comes to retirement planning, most investors think of traditional options like stocks, bonds, and mutual funds. However, alternative investments within tax-advantaged accounts can offer new opportunities for diversification, growth, and asset protection. Understanding how self-directed IRAs and other retirement plans can be used to invest in alternative assets is key to making informed financial decisions.
What Are Alternative Investments in Tax-Advantaged Plans?
Alternative investments refer to non-traditional assets that can be held within tax-advantaged accounts, such as:
● Self-Directed IRAs (SDIRAs)
● Roth IRAs
● 401(k) Plans
● Health Savings Accounts (HSAs)
● Simplified Employee Pension (SEP) IRAs
Unlike conventional brokerage accounts, self-directed plans allow investors to diversify beyond publicly traded securities into real estate, private equity, precious metals, and more.
Types of Alternative Investments Allowed in Tax-Advantaged Accounts
The IRS does not provide an official list of allowed investments but does prohibit certain transactions. Below are some common alternative investments permitted within self-directed retirement accounts:
1. Real Estate Invest
ments
Real estate is one of the most popular alternative investments in SDIRAs. Investors can purchase:
● Rental properties
● Commercial real estate
● Raw land
● Real estate investment trusts (REITs)
Key Considerations:
● The property must be held in the IRA’s name.
● No personal use is allowed (e.g., you cannot live in an IRA-owned property).
● All rental income must flow back into the IRA.
2. Private Equity & Private Placements
Investing in startups, venture capital, and private businesses can be a high-risk, high-reward strategy. SDIRAs can participate in:
● LLCs and partnerships
● Private stock offerings
● Hedge funds
Important Rule: You cannot invest in a company in which you or a disqualified person (e.g., a spouse, parent, or child) has a controlling interest.
3. Precious Metals
Certain gold, silver, platinum, and palladium bullion and coins are permitted within retirement accounts. However, collectible coins are prohibited.
Allowed:
● U.S. Minted Gold and Silver Eagles
● Approved gold, silver, and platinum bullion stored with an IRS-approved custodian
4. Tax Liens and Mortgage Notes
Investors can generate passive income through:
● Tax lien certificates (purchasing delinquent property tax debt)
● Mortgage notes (lending funds secured by real estate)
These investments can provide steady returns but require thorough due diligence to mitigate risk.
5. Cryptocurrency & Digital Assets
With the rise of digital assets, many investors are using SDIRAs to invest in Bitcoin, Ethereum, and other cryptocurrencies. However, storage must be handled through an approved custodian.
Understanding IRS Rules & Prohibited Transactions
While the IRS allows flexibility in self-directed retirement accounts, certain rules must be followed:
Prohibited Transactions (IRC § 4975)
You cannot:
● Buy or sell assets between yourself and your IRA.
● Use IRA funds for personal benefit (e.g., vacation homes).
● Lend money to disqualified persons, such as family members.
Disqualified Persons
● Yourself (the IRA owner)
● Your spouse
● Lineal family members (parents, children, grandparents, grandchildren)
● Businesses owned 50% or more by disqualified persons
Example of a Prohibited Transaction: If you own a rental property personally and sell it to your IRA, this violates IRS rules and could result in severe tax penalties.
Benefits of Alternative Investments in Retirement Accounts
1. Diversification – Reduce reliance on stock market volatility.
2. Tax-Advantaged Growth – Investments grow tax-deferred ortax-free (Roth IRA).
3. Inflation Hedge – Real assets like real estate and gold help protect purchasing power.
4. Greater Control – Self-directed accounts allow investors to choose unique investment opportunities.
How to Get Started with Alternative Investments
1. Open a Self-Directed IRA – Work with a trusted custodian who specializes in alternative investments.
2. Understand IRS Guidelines – Ensure compliance with tax rules to avoid penalties.
3. Conduct Due Diligence – Research investment opportunities thoroughly before committing funds.
4. Partner with Experts – Consult CPAs, financial advisors, and legal professionals to structure your investments properly.
Let Boxelder Help You Navigate Tax-Advantaged Investing
Investing in alternative assets through a tax-advantaged plan requires careful planning and compliance with IRS regulations. At Boxelder, our expert CPAs and financial advisors help small business owners and investors make informed financial decisions, maximize tax benefits, and ensure IRS compliance.
Whether you’re looking to invest in real estate, private equity, or other alternative assets, Boxelder can guide you every step of the way. Contact us today to schedule a consultation and explore the best tax-advantaged strategies for your portfolio!
