Gold and other precious metals
Physical gold and precious metals are popular self-directed Roth IRA investments. Precious metals are often used by investors to diversify their holdings and preserve wealth, no matter what the economy is doing. Gold is often cited as a common inflation hedge.
Real estate
Self-directed Roth IRA account holders can buy investment properties through their IRA. However, there are lots of rules to abide by.
First, you can't buy property you intend to live in either full- or part-time. Next, the process can be complicated and time-consuming, since you must be sure not to mix personal and IRA funds with a real estate investment. All expenses, taxes, and insurance for the investment property must be paid from the IRA.
Debt
Through a self-directed Roth IRA, it is possible to purchase a variety of debt instruments. Tax liens are one popular example. You can also purchase loans (or an interest in a loan) through debt-investing platforms.
Businesses
You can invest in businesses within a self-directed Roth IRA, either in their entirety or in part. For example, if you want to use your self-directed IRA to buy a convenience store, you can do that. However, there are several rules governing the ownership of businesses in self-directed IRAs, so it's a good idea to reach out to a professional financial planner before you get started.
Bitcoin and other digital currencies
Digital currencies like Bitcoin (BTC -1.00%) are still relatively new investments, and they're often predicted to play a central role in a digitized financial future. Since they're considered capital assets, digital currencies are subject to capital gains taxes when sold at a profit, so holding them in a tax-advantaged account can make a lot of sense.
According to First Digital IRA, which specializes in helping investors purchase digital currencies in self-directed IRAs, most of their clients invest just a small portion of their assets in Bitcoin and other digital currencies. In other words, Bitcoin, like the other items listed here, can be used to further diversify one's retirement assets.
Reputable self-directed IRA custodians with digital currency capabilities store clients' digital currencies in a much more secure manner than most individuals would do for themselves.
Prohibited transactions
Some types of investments and transactions are prohibited under the self-directed Roth IRA rules, including:
Self-dealing
Self-dealing refers to conducting business with yourself -- that is, buying assets from, or selling them to, your own IRA. Self-dealing prohibitions apply not just to you as an individual but to all "disqualifying persons," which include your spouse, your beneficiaries, or your business.
A prohibition against self-dealing is in place to prevent fraudulent transfers that are often conducted to avoid taxes. It also limits the temptation to initiate transactions that may appear legitimate but have no underlying economic substance.
