The prohibited list is short

The Internal Revenue Code never restricted IRAs to publicly traded securities. That limitation is a product of brokerage platforms, not tax law. The statute prohibits three categories outright:

Life insurance contracts
Collectibles, meaning artwork, rugs, antiques,gems, stamps, most coins, alcoholic beverages, and similar tangible personal property. Certain gold, silver, platinum, and palladium bullion meeting fineness standards, and specific U.S.-minted coins, are carved out by statute and are permitted.
S-Corporation

Everything else is permitted, which is why the allowable list is far longer than the prohibited one.

Commonly held alternative assets

Real estate. Residential and commercial rentals, raw land, fix-and-flip projects, and fractional interests. All income flows back to the IRA, and all expenses are paid by the IRA.
‍
‍Promissory notes. The IRA acts as lender. Secured or unsecured, performing or non-performing. Payments of principal and interest return to the IRA.

Private placements. LLC membership interests, limited partnership units, private company stock, private funds, and syndications.

‍Precious metals. Bullion and specific coins meeting IRS fineness requirements, held at an approved depository. Metals cannot be stored at home or in a personal safe deposit box.

‍Cryptocurrency. Digital assets held within the tax-advantaged structure.

The rules that actually cause problems

Violations rarely come from the asset itself. They come from who the IRA transacts with.

IRC § 4975 defines disqualified persons as the IRA owner, the owner's spouse,ancestors, lineal descendants and their spouses, plus any entity in which thoseparties collectively own or control 50% or more. Siblings, cousins, aunts,uncles, and friends are generally not disqualified persons.

A prohibited transaction is any direct or indirect sale, exchange, lease, loan, extension of credit, or furnishing of goods or services between the IRA and a disqualified person. It also covers any use of IRA assets for the benefit of a disqualified person.

In practice,that means:

You cannot buy a property your IRA owns, or sell your own property to your IRA
You cannot stay in an IRA-owned vacation property, even for one night, even paying market rent
You cannot lend IRA money to your child, or borrow from the IRA yourself
You cannot perform repairs on an IRA-owned property with your own labor, often called sweat equity
You cannot personally guarantee a loan made to your IRA
You cannot receive a commission on a transaction you rIRA enters into

The consequences are severe. A prohibited transaction can disqualify the entire IRA, treating the full account balance as distributed as of January 1 of the year theviolation occurred, with income tax on the whole amount and a 10% penalty ifyou are under 59½. Penalty excise taxes under § 4975(a) start at 15% of theamount involved and rise to 100% if the transaction is not corrected.

Due diligence is yours alone

An administrator processes the transaction. It does not confirm that a property title is clear, that a borrower is credit worthy, that a private offering is properly registered, or that a sponsor is honest. Self-directed IRAs have beenused as a vehicle in fraud schemes precisely because investors assume someone else vetted the deal, when in fact no one has.

Verify the sponsor, the asset, and the paperwork independently. Consult your own financial advisor, CPA, or attorney before directing IRA funds into any investment.

Frequently Asked Questions

Can I buy real estate with a self-directed IRA?

Yes. Real estate is among the most commonly held self-directed IRA assets. Title is held in the name of the IRA, not your name. All purchase funds come from the IRA, all rental income returns to the IRA, and all expenses including taxes, insurance, repairs, and management must be paid from IRA funds.

Can I live in or use a property my IRA owns?

No. Personal use of an IRA-owned property by you or any disqualified person is a prohibited transaction, even if you pay fair market rent and even for a single night. The same applies to your spouse, parents, children, and their spouses.

Who is a disqualified person under IRC § 4975?

You, your spouse, your ancestors such as parents and grandparents, your lineal descendants such as children and grandchildren and their spouses, any fiduciary to the account, and any entity in which those parties collectively own or control 50% or more. Siblings, cousins, aunts, uncles, and unrelated friends are generally not disqualified persons.

What happens if I commit a prohibited transaction?

The IRA can lose its tax-advantaged status entirely. The full account balance may be treated as distributed as of January 1 of the year the violation occurred, triggering income tax on the whole amount and a 10% early withdrawal penalty if you are under 59½. Excise taxes under § 4975 begin at 15% of the amount involved and can reach 100% if uncorrected.

Can I store precious metals from my IRA at home?

No. IRA-owned bullion and coins must be held at an approved depository. Taking physical possession is treated as a distribution of those assets, with the associated taxes and potential penalties.

Can my IRA lend money to a family member?

Not to a disqualified person, meaning your spouse, parents, grandparents, children, grandchildren, or their spouses. A loan to a sibling, cousin, or unrelated party is generally permitted, though the note should be documented at arm's length and reviewed with your own advisor first.

Can I do the repairs myself on my IRA's rental property?

No. Performing labor on an IRA-owned asset is furnishing services to the IRA, which is a prohibited transaction. Repairs must be performed by an unrelated third party and paid for with IRA funds.