6 Surprising IRA Investment Options

  • Looking for alternatives

    Most people think of stocks, bonds, mutual funds and the like when deciding where to invest their individual retirement account, or IRA, funds. But you have many other choices.

    You might want to try a nontraditional approach with at least some of your IRA assets. Saving for retirement can be done via a number of unusual investments, including real estate or a closely held business. Likewise, a physical stash of gold coins may appeal to you if you worry about financial calamity or runaway inflation.

    Before using your IRA to dabble in investments that are out of the mainstream, however, be aware that along with potential rewards are, in some cases, higher-than-average risks. Nontraditional investments typically are done through what's known as self-directed IRAs. You'll need a custodian to handle the account, who may be tough to find because major IRA custodians like banks and mutual funds typically stick to basic offerings. So do your homework, don't rush -- and don't do anything that makes you uneasy.

  • Heads up on coins

    You can buy these coins with your IRA: U.S. gold coins in 1-ounce, half-ounce, quarter-ounce and one-tenth-ounce denominations; and 1-ounce silver coins minted by the U.S. Treasury Department. Certain platinum coins are also allowed.

    Gold and silver coins have been measurements of value for thousands of years. They tend to be stable or go up when stock markets crash or inflation soars. Gold and silver have shown their mettle in recent years.

    But that doesn't necessarily mean they're good for every IRA. For one thing, they don't pay interest or dividends, so you won't be compounding returns between purchase and withdrawal. And a lot of mainstream IRA custodians like banks and mutual funds don't offer this IRA option.

    That's two reasons they may be problematic, says Meg Green, founder of Meg Green & Associates, a wealth management firm in Miami. "Where are you going to find a custodian to keep them for you?" she asks. Internal Revenue Service regulations require storage be overseen by a custodian, but custodians don't have to offer the service.

    The second problem is cash flow. "You need things that provide income," she says.

  • That's so precious

    Besides coins, since 1997 the IRS has allowed investors to use IRA funds to buy precious metals bullion such as silver or gold bars. Like coins, your bullion is stored for you, for a fee. Your custodian arranges it.

    The following metals can be purchased with an IRA, subject to standards of purity: gold, silver, palladium and platinum.

    Again, Green says she's not a fan, at least for IRAs. For one thing, once you reach age 70½, you're required to start taking required minimum distributions from a traditional IRA by April 1 of the following year. The distribution is a percentage of your IRA's value. If you're holding bullion "you'll have to get it valued every year" to compute your minimum distribution.

    Another issue, in her opinion: "It doesn't perform over time. It's all peaks and valleys."

  • Mortgaging retirement

    A private mortgage is another little-known IRA investment opportunity. When you buy a mortgage, you're the banker, at least for one property. A private mortgage company can match you to a borrower and handle the paperwork. Your IRA lends to the borrower, and the loan is secured by the property.

    Because you don't own the property, if the value goes up, you don't participate in the profits. However, your investment is backed by a real asset -- although the foreclosure crisis proved that doesn't eliminate risk. The return can be lucrative, compared to other interest-based investments such as certificates of deposit.

    But tread carefully, advises Harold Evensky, president of Evensky & Katz, a financial planning firm in Coral Gables, Fla. "You have to find a custodian to do it, and most of the major companies don't," he says.

    The second caveat is that typically these mortgages are for above-market rates, which suggests creditworthiness issues. "If someone is paying you over the market, you need to ask why," Evensky says.