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Roth IRA Investment Options

What are your Roth IRA investment options?

That's a great question.

You scrimped... You saved...

And you finally put together enough money to fund your Roth IRA...

Now, just one problem remains...

What can you invest in?

The answer is... a whole lot.

If you're going to stick with stocks, bonds mutual funds, or other traditional financial products such as Certificate of Deposit (CD's), then you don't need to worry too much about this question.

You're definitely covered.

But if you plan on braving other frontiers, such as real estate and less traditional Roth IRA investment products, then you need to do some investigation first.

Roth IRA Investment Options

As a general rule, IRS regulations allow a Roth IRA accountholder to invest in the following:

  • Common Stocks
  • Bonds
  • Mutual Funds
  • Certificates of Deposit (CDs)
  • Exchange Traded Funds (ETFs)
  • Money Market Accounts
  • Savings Accounts
  • Treasury Inflation Protected Securities (TIPs)
  • Real Estate Investment Trusts (REITs)
  • Platinum, Gold, and Silver Coins

While Roth IRA accountholders are barred from investing in:

  • Collectibles (Priceless art, classic autos, antiques, stamps, etc.)
  • Cash Value Life Insurance

Let's take a more in-depth look at these options.

What You Can Hold

You should have no problem using your Roth IRA to hold the following investments...

  • Common Stocks
  • Bonds
  • Mutual Funds
  • Certificates of Deposit (CDs)
  • Exchange Traded Funds (ETFs)
  • Money Market Accounts
  • Savings Accounts
  • Treasury Inflation Protected Securities (TIPs)
  • Real Estate Investment Trusts (REITs)
  • Platinum, Gold, and Silver Coins

Stocks, of course, are the most popular pick for Roth IRA account holders, but that doesn't mean you have to invest stocks or mutual funds just because everyone else does.

My recommendation?

Go with what you know.

Trust your instincts.

If you have a well-thought out reason for believing one investment class is superior to another, then by all means, put your money where your mouth is.

That's the beauty of a Roth IRA...

You control your own destiny.

And you succeed or fail based on the merit of your own decision making...

Doesn't that sound a lot better than putting your retirement future in the hands of a Wall Street investment manager you've never even met?

What You Can't Hold

As a general rule, you can't use funds in your Roth IRA to invest in the following:

  • Collectibles (Priceless art, classic autos, antiques, stamps, etc.)
  • Cash Value Life Insurance

Why can't you invest in these?

Well, the IRS answer is very similar to one you used to hear from your parents...

Because I said so.

At the end of the day, those are just the rules.

However, it's probably due to the fact that these investment options are less liquid than the ones that are allowed, so the market value is very questionable.

For example, IRS rules prohibit anyone from contributing more than $6,000 per year to a Roth IRA.

How can they enforce that rule if people are investing in collectibles?

Who's to say a painting or an antique is worth $5,000 and not $10,000?

The market simply isn't liquid enough for the government's purposes.

So, as a general rule, these types of investments are off-limits...

Real Estate and Your Roth IRA: A Special Note

I've run across a lot of web sites recently which trumpet using your Roth IRA to invest in real estate.

The IRS does allow you to purchase rental property and other real estate with funds in your Roth IRA.

However, I wouldn't recommend this...


Because if you invest in real estate the right way, a Roth IRA doesn't provide you with any benefits you don't enjoy already.

For instance, let's say you purchase a $200,000 rental property with a $10,000 down payment.

After expenses, you have a positive cash flow of $100 per month...

Do you owe income taxes on this $100?


Well, why not?

Because the $100 per month in positive cash flow is offset by depreciation of the building...

But what if you sell the rental property? Won't you owe capital gains tax?

Not if you use the proceeds to purchase additional rental property of equal or greater value...

Notice a theme here?

The law already provides significant advantages to real estate investors when it comes to avoiding income taxes and capital gains taxes.

Take advantage of those favorable rules outside of your Roth IRA.

Use the tax advantages of your Roth IRA for normally less tax-friendly investments like stocks and bonds.

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We hope you find what you're looking for and wish you much continued success in your retirement planning!

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