Yep, an IRA can legally own real estate and a lot of other alternative investments, too, ranging from private equity and promissory notes to gold, oil and gas and cattle. (It can’t own insurance, collectibles or stock in S corporations.)
Interested? The big financial institutions that act as custodians for most IRAs generally limit investments to publicly traded stock, bonds, mutual funds and bank CDs. So you’ll first need to move your IRA to one of about two dozen smaller custodians offering “self-directed IRAs.”
This is still a niche business. As of May 2011 only $94 billion (2% of total IRA assets) was in self-directed IRAs, according to the Investment Company Institute, the mutual funds trade group. Some belong to the very wealthy—Mitt Romney’s holds offshore investments, including one worth between $5 million and $25 million in a Cayman Islands entity, according to his financial disclosure forms.
But ordinary folks have gotten into the act, too. John Mitchell, a manufacturer’s rep for software companies, is investing $50,000 of his self-directed IRA in precious metals—primarily gold and silver. He uses the Entrust Group in Oakland, Calif. as custodian, but the metal is stored with a bullion dealer near his Tampa, Fla. home. Mitchell, 37, says he likes being able to drop by to admire his metals.
Matt Lutz of Bethel Park, Pa. owned a chain of dry cleaning stores in 2006 when he rolled over a $70,000 IRA into a self-directed account at Equity Trust Co. in Elyria, Ohio. Since then he has more than tripled its value—mostly by making loans from his IRA to car dealers to finance their inventory. Three years ago Lutz, 38, sold his dry cleaning business to work full-time putting together similar loans for other people to use as IRA investments.