Since the Employee Retirement Income Security Act of 1974, citizens of the United States have been given powerful tools to prepare for and manage their retirements. The ERISA laws established the traditional IRA that has become one of the hottest retirement instruments in history. In 1997, the law was further enhanced by the Taxpayer Relief Act which, among other things, established the Roth IRA (named after former Senator Roth of Delaware).

Both traditional IRAs and Roth IRAs were designed to ease the tax burden on people as they build retirement nest eggs. Both versions offer a tax favorable way for people to invest but they vary significantly in how taxes are levied on included income and assets. IRAs and Roth IRAs are capable of holding broad ranges of investments because the laws define only activities that are forbidden. Any investment or arrangement not expressly forbidden is acceptable.

After choosing between a traditional IRA and a Roth IRA, one has to decide what assets to place therein. The vast majority of IRA holdings are made up of traditional investments, like stocks, bonds and various mutual fund holdings. These traditional investment options are often the only choices one is given because they are highly favored by the large brokerage houses, banking institutions, and insurance companies that hold the majority of IRAs.

Non-Traditional IRA Investment Options

Deciding how to invest for retirement is a matter of crunching numbers, settling on an acceptable level of risk, and defining your strategy. Once you know where you want to go and how much risk you are willing to take to get there, you can decide with whom to place your IRA. The laws do not allow people to be the sole operators of their IRAs. A third party must be involved to hold your IRA. You can make the decisions but the fiduciary usually enacts them.

This is the main reason why non-traditional IRA investments such as real estate make up such a small percentage of IRA holdings. You may only find a handful of companies willing to hold an IRA made up of rental properties, gold bullion, and stocks on the Nikkei Exchange. By the time you have separated the trustworthy from the opportunists, you may only have three or four options in holding companies.

With the ongoing boom in real estate markets and continuing uncertainties within the major stock markets, however, non-traditional IRA investments are definitely becoming more common. You should have a much easier time finding an appropriate holding company for non-traditional IRA assets than you would have only a few years ago. Non-traditional IRA investments can be much more complex and you should be certain all protocols are met to protect your IRA's tax-favorable status.

The Rules and the Guidelines

The IRA rules say that you cannot directly invest in foreign property, art, jewelry, furniture, companies in which you own a controlling interest, and other things which represent immediate benefit. The IRS wants their share of such holdings. Though the list of exclusions may seem rather long, you simply need to think about what you can do rather than what you cannot do. You can invest in real estate not inhabited by you or your relatives, businesses not controlled by you or your relatives, and precious metals not worn by you or your relatives (like bars of gold).

The basic guideline for non-traditional IRA investing is that if you cannot determine an investment's legitimacy within your IRA, you should avoid it. Penalties for such financial missteps can be steep. This is one of the main reasons the IRA laws require third-party custodians, to keep people from accidentally ruining the tax advantages of their IRAs. A good IRA custodian-advisor will point out excellent investment opportunities and help you steer clear of the many pitfalls.