{"id":181387,"date":"2025-03-03T13:39:00","date_gmt":"2025-03-03T20:39:00","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=181387"},"modified":"2025-03-03T15:24:04","modified_gmt":"2025-03-03T22:24:04","slug":"investments-you-cannot-hold-in-an-ira","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/investments-you-cannot-hold-in-an-ira","title":{"rendered":"5 Investments You Can\u2019t Hold in an IRA"},"content":{"rendered":"\n

Real estate investors are increasingly looking for ways to grow their portfolios, and <\/span>self-directed IRAs<\/span><\/a> offer a way to invest in real estate while deferring or even eliminating taxes on earnings. Unlike traditional IRAs that focus on stocks and mutual funds, a self-directed IRA allows you to diversify into alternative assets like rental properties or raw land and even <\/span>lending to other investors<\/span><\/a>.<\/span><\/p>\n\n\n\n

However, before using your retirement funds to invest in real estate, it\u2019s <\/span>important<\/span> to understand <\/span>that there are<\/span> strict IRS rules regarding what an IRA cannot invest in. The IRS doesn\u2019t provide a list of approved investments, but they do outline what is prohibited. Failing to follow these rules could trigger taxes and penalties or <\/span>even<\/span> disqualify your IRA entirely.<\/span><\/p>\n\n\n\n

Here are five investments that are not allowed within an IRA:<\/span><\/p>\n\n\n\n

1. Property for Personal Use<\/span><\/h2>\n\n\n\n

While real estate investments are allowed within an IRA, <\/span>any property purchased with IRA funds cannot be used<\/span> for personal purposes. <\/span>This<\/span> means you or another disqualified person cannot live in, vacation at, or otherwise use the property for yourself. <\/span><\/p>\n\n\n\n

For example, if your IRA purchases a vacation rental property, you cannot stay there for even one night. The property must be strictly held as an investment and <\/span>must<\/span> not provide any personal benefit to you or any disqualified persons.<\/span><\/p>\n\n\n\n

Additionally, <\/span>any expenses related to the property (such as maintenance, repairs, and property taxes) must be paid<\/span> directly from the IRA<\/span><\/a>. Conversely, any income generated from the property (such as rental income) must be deposited back into the IRA and cannot be withdrawn for personal use until you reach retirement age. <\/span><\/p>\n\n\n\n

2. Property You or Another Disqualified Person Owns <\/span><\/h2>\n\n\n\n

Real estate is a popular investment option for self-directed IRAs, but there are guidelines on how that real estate can be acquired and used. One of the <\/span>biggest<\/span> restrictions is that you cannot invest in property that you or another disqualified person owns or has previously owned.<\/span><\/p>\n\n\n\n

A <\/span>disqualified person<\/span><\/a> includes you, the IRA owner, your spouse, direct ancestors or descendants like parents, grandparents, and children, and any entity where you or another disqualified person has significant ownership. For example, if you currently own a rental property and want to move it into your IRA, this would also be a prohibited transaction. <\/span><\/p>\n\n\n\n

To avoid issues, IRA real estate investments must be entirely arms-length transactions, meaning you and any disqualified individuals cannot live in, work on, or personally benefit from the property in any way. The property must be solely for <\/span>investment purposes<\/span><\/a>.<\/span><\/p>\n\n\n\n

3. A Personally Guaranteed Loan or Loan to Yourself or Another Disqualified Person<\/span><\/h2>\n\n\n\n

IRAs cannot be used<\/span> to extend loans to you, your business, or any <\/span>other<\/span> disqualified person. Additionally, you cannot personally guarantee a loan that <\/span>is taken out<\/span> using IRA funds.<\/span><\/p>\n\n\n\n

Here\u2019s what that means in practice:<\/span><\/p>\n\n\n\n