Alternative Investments
IRA Alternative Investments
A self directed IRA can invest in real estate, gold, cryptocurrency, private loans, private equity, tax liens, and other alternative assets beyond stocks and funds. Here is the complete guide to IRA alternative investments.
Most retirement accounts are limited to stocks, bonds, mutual funds, and ETFs. That restriction is not an IRS rule. It is a policy imposed by conventional financial institutions that sell those products. A self directed IRA removes that restriction. With a self directed IRA, your retirement savings can invest in real estate, physical gold and silver, cryptocurrency, private loans, private equity, tax liens, farmland, startups, and virtually any other asset the IRS permits.
IRA alternative investments have grown significantly in popularity as investors look for ways to diversify retirement portfolios beyond publicly traded markets. A rental property inside an IRA generates rental income that accumulates tax-deferred. A private loan earns interest that flows back to the IRA tax-free in a Roth account. Physical gold inside an IRA appreciates entirely within the tax shelter. None of this is possible in a conventional brokerage IRA. For the foundational rules on self directed IRAs, see our getting started guide and our guide on what is a self directed IRA. Explore the full library at IRA Guidelines and model potential returns with our IRA calculator.
Key Takeaways
- The IRS permits almost any investment inside an IRA except life insurance contracts, collectibles, and S-corporation shares
- Alternative investments in an IRA accumulate tax-deferred in a Traditional SDIRA or completely tax-free in a Roth SDIRA
- The most commonly held IRA alternative investments are real estate, precious metals, cryptocurrency, private loans, and private equity
- All alternative investments must be made in the name of the IRA, not the account owner — income and expenses flow through the IRA account only
- Prohibited transaction rules under IRC 4975 prevent self-dealing and transactions with disqualified persons including yourself and your immediate family
- Some IRA alternative investments such as leveraged real estate can trigger UBIT or UDFI taxes even while funds remain inside the account
What Are IRA Alternative Investments
IRA alternative investments are any assets held inside a self directed IRA that fall outside the conventional categories of publicly traded stocks, bonds, mutual funds, and ETFs. The IRS does not restrict IRAs to conventional financial products. The restriction comes from the custodian. A self directed IRA custodian is specifically designed to hold alternative assets on behalf of a retirement account.
The IRS explicitly prohibits only three categories inside any IRA: life insurance contracts, collectibles such as art, antiques, and most coins, and S-corporation stock. Everything else is legally permissible inside a self directed IRA as long as the prohibited transaction rules are followed and the custodian supports the asset class. For the complete framework see our guide on IRA prohibited transactions.
Real Estate IRA Investments
Real estate is the most widely held alternative asset inside self directed IRAs. A self directed IRA can purchase virtually any type of investment real property: single-family rental homes, multi-family properties, commercial real estate, raw land, farmland, mobile home parks, storage facilities, tax liens, tax deeds, and participation in real estate syndications and partnerships.
When an IRA owns real estate, all income from the property flows directly into the IRA account. All expenses — property taxes, insurance, repairs, management fees — must be paid from IRA funds. You cannot personally pay any expense for an IRA-owned property and you cannot personally benefit from the property in any way. The IRA is the owner. You are the investment director.
Real estate inside a Roth SDIRA is particularly powerful. All rental income accumulates tax-free. When the property sells at a gain, the entire gain is tax-free. For the best custodians for real estate IRA investing, see our guide on the best self directed IRA companies for real estate investing. For non-recourse financing in a real estate IRA, see our guide on non-recourse loan rules for self directed IRAs.
Precious Metals IRA Investments
A self directed IRA can hold physical gold, silver, platinum, and palladium that meets IRS purity standards. Gold must be at least .995 fine with the exception of American Gold Eagles permitted at .9167. Silver must be .999 fine. Platinum and palladium must be .9995 fine. All IRA-held precious metals must be stored at an IRS-approved depository — home storage is prohibited and constitutes a taxable distribution.
Gold and precious metals inside an IRA are among the most straightforward alternative investments from a compliance standpoint. The IRA purchases approved metals through a dealer, the dealer ships the metals to an IRS-approved depository, and the depository holds them on behalf of the IRA. All appreciation accumulates tax-deferred or tax-free inside the account. For the best gold IRA companies, see our best gold IRA companies for 2026.
Cryptocurrency IRA Investments
A self directed IRA can hold cryptocurrency including Bitcoin, Ethereum, and other IRS-permitted digital assets. Crypto inside an IRA accumulates completely tax-deferred in a Traditional SDIRA or tax-free in a Roth SDIRA. Trading crypto inside an IRA does not trigger capital gains events — all trades and appreciation compound inside the tax shelter.
The key compliance requirement for crypto in an IRA is custody. You cannot hold IRA-owned cryptocurrency in a personal wallet. The crypto must be held by a qualified custodian using compliant institutional custody infrastructure. Home storage or personal wallet custody of IRA cryptocurrency is a prohibited transaction. For the complete crypto IRA framework see our guide on cryptocurrency in a self directed IRA.
Private Lending IRA Investments
A self directed IRA can act as the lender on private loans. The IRA funds the loan, the IRA is named as the lender on all documents, and all interest and principal payments flow back to the IRA account. Private lending is one of the most tax-efficient IRA alternative investment strategies because standard interest income from private loans is generally exempt from UBIT and accumulates fully tax-deferred or tax-free.
Common IRA private lending structures include first position mortgage notes secured by real property, second position mortgage notes, unsecured bridge loans, and business loans secured by assets. Your IRA cannot lend to you personally, your spouse, your children, or any entity you control — these are disqualified persons and any loan to them is a prohibited transaction. For the complete private lending framework see our guide on IRA private lending complete guide and our guide on private lending inside a self directed IRA.
Private Equity IRA Investments
A self directed IRA can invest in private company equity including startup shares, LLC membership interests, limited partnership interests, and other non-publicly traded business ownership. Private equity inside an IRA can generate significant tax-free returns if held in a Roth SDIRA — a startup that grows 10x inside a Roth SDIRA produces a gain that is completely tax-free at exit.
Private equity IRA investments require careful prohibited transaction screening. You cannot invest your IRA in a company you own more than 50 percent of, a company your spouse or children own more than 50 percent of, or a company where your investment creates a personal benefit for any disqualified person. For the private equity IRA framework see our guide on investing IRA funds in startups.
IRA Alternative Investments: Tax Treatment Comparison
| Asset Type | Typical Income | UBIT Risk | Best Account Type |
|---|---|---|---|
| Real estate (unleveraged) | Rental income, appreciation | Low | Roth SDIRA for long-term holds |
| Real estate (leveraged) | Rental income, appreciation | Medium — UDFI applies | Either, model UDFI cost first |
| Physical gold and silver | Appreciation only | None | Roth SDIRA for maximum gain shelter |
| Cryptocurrency | Appreciation, trading gains | None for passive holding | Roth SDIRA for tax-free compounding |
| Private loans | Interest income | None typically | Either, interest fully sheltered |
| Private equity | Appreciation, dividends | Low for passive stakes | Roth SDIRA for tax-free exit gains |
IRA Alternative Investment Rules
Everything Must Stay Inside the IRA
All income generated by an IRA alternative investment must flow back into the IRA account. All expenses must be paid from IRA funds. You cannot personally receive income from an IRA asset, pay expenses on behalf of the IRA out of pocket, or use an IRA-owned asset for personal purposes. Every dollar stays inside the IRA until you take a qualified distribution.
Prohibited Transactions Apply to All Alternative Assets
The prohibited transaction rules apply equally to every IRA alternative investment. Whether it is real estate, a private loan, or a startup investment, you cannot transact with a disqualified person. Your IRA cannot buy a property from your parents, lend money to your child, or invest in a company controlled by your spouse. Violations cause the entire IRA to be treated as fully distributed and taxed in the year they occur. See our guide on prohibited transactions and our guide on who is a disqualified person in a self directed IRA.
Some Alternative Investments Trigger IRA Taxes
While most IRA alternative investment income accumulates tax-free inside the account, two scenarios can create current tax obligations. UBIT applies when the IRA earns active business income from an operating company or certain LLC structures. UDFI applies when the IRA uses borrowed money to purchase assets, such as a non-recourse loan on a rental property. When either exceeds $1,000, the IRA must file Form 990-T and pay the tax from IRA funds. For the full tax framework see our guide on SDIRA tax rules.
Frequently Asked Questions
What alternative investments can an IRA hold?
A self directed IRA can hold almost any alternative investment the IRS permits. Common IRA alternative investments include real estate of all types, physical gold and silver meeting IRS purity standards, cryptocurrency held through qualified custodians, private mortgage notes and promissory notes, private company equity and startup shares, tax liens, tax deeds, farmland, and real estate syndications. The IRS prohibits only life insurance contracts, collectibles, and S-corporation shares from being held inside any IRA.
Can a regular IRA hold alternative investments?
No. A conventional IRA held at a brokerage like Fidelity or Schwab is limited to publicly traded securities including stocks, bonds, mutual funds, and ETFs. The restriction is not an IRS rule — it is a custodian policy. To hold alternative investments inside an IRA, you need a self directed IRA held with a specialized SDIRA custodian that supports your target asset class. The tax structure is identical. The difference is entirely the custodian and the assets permitted.
Are IRA alternative investments taxed?
Most IRA alternative investment income is not currently taxed. Income from real estate, precious metals, private loans, and cryptocurrency inside a self directed IRA accumulates tax-deferred in a Traditional SDIRA or completely tax-free in a Roth SDIRA. Taxes are owed only on withdrawals from a Traditional SDIRA in retirement. Two exceptions exist: UBIT applies when the IRA earns active business income, and UDFI applies when the IRA uses borrowed money. Both can trigger a Form 990-T filing requirement and tax paid from IRA funds.
What is the best alternative investment for an IRA?
The best IRA alternative investment depends on your risk tolerance, investment experience, and retirement timeline. Real estate offers rental income and appreciation inside the tax shelter and is the most commonly held alternative asset in SDIRAs. Private lending offers predictable fixed returns with real property collateral and no property management responsibility. Precious metals provide inflation protection and appreciation entirely within the tax shelter. Cryptocurrency inside a Roth SDIRA allows tax-free compounding on high-volatility assets. Most experienced SDIRA investors hold more than one alternative asset class across their retirement portfolio. Use our IRA calculator to model projected returns across different asset types and contribution scenarios.