Articles recommending particular stocks "for your IRA" raise a more basic question: what is an IRA allowed to hold? The answer is: more than most people think, but with some important exceptions. This page does not recommend any investment.
What is allowed
An IRA is a tax-advantaged account, not an investment in itself. Through a brokerage IRA you can usually hold:
- individual stocks, including shares in large conglomerates;
- bonds and Treasury securities;
- mutual funds and exchange-traded funds;
- certificates of deposit.
Self-directed IRAs, offered by specialist custodians, can also hold assets such as real estate, private company shares and some digital assets, subject to strict rules.
What is not allowed
- Collectibles. Under section 408(m) of the Internal Revenue Code, buying art, antiques, gems, stamps, most coins and alcoholic beverages in an IRA is treated as a taxable distribution. Certain gold, silver and platinum coins and bullion meeting fineness standards are exceptions.
- Life insurance. IRAs cannot invest in life insurance contracts.
- Prohibited transactions. Under section 4975, the IRA owner and "disqualified persons", such as close family members, cannot deal with the IRA for their own benefit: no borrowing from it, selling property to it, using it as security for a loan or living in a property it owns. A prohibited transaction can cause the whole IRA to be treated as distributed.
Concentration risk
Holding a few individual stocks, even large diversified companies, exposes a retirement account to the fortunes of those businesses. Conglomerates have broken up, been restructured or fallen sharply in the past. Most professional guidance suggests that retirement savings be broadly diversified, and that individual stock positions be a limited share of the total.
Tax treatment of dividends
Dividends and gains inside an IRA are not taxed as they arise. In a traditional IRA, withdrawals are taxed as ordinary income; in a Roth IRA, qualified withdrawals are tax-free. That means the favourable tax rates on qualified dividends and long-term gains in a taxable account do not apply inside a traditional IRA, a point worth weighing when deciding where to hold different investments.
Sources
General information about the law as it stood when this page was updated, not financial, tax or legal advice. Rules and limits change; check the official source or a qualified adviser before acting.