Forex Articles

Of the $7 trillion that Americans have managed to save in their Individual Retirement Accounts (IRAs), roughly half is in mutual funds. While that may be the easiest and most sensible place for many of us to keep our IRA money, mutual funds are far from your only option. Here are some other possibilities.

In addition to bond mutual funds, you can hold individual bonds in an IRA. In fact, your IRA can be a good place for taxable bonds because their interest will accumulate tax-deferred until you later withdraw it. By contrast, if you hold taxable bonds outside of an IRA, the interest on them will generally be taxed each year as ordinary income – a rate that's usually higher than you'd pay on stock dividends or capital gains.

Although you could also keep tax-free bonds in your IRA, that's usually a bad idea. Their interest is already untaxed, so having them in an IRA doesn't offer any benefit. What's more, your IRA withdrawals will eventually be taxed, turning what would otherwise have been tax-free money into taxable income. For more on bonds, see our tutorial Bond Basics.

Available through banks, brokers, and credit unions, CDs typically pay a fixed interest rate for a fixed period. Their returns may be paltry in times of low interest rates overall, but they have the advantage of predictability and safety. Bank-issued CDs, for example, are likely to be insured, up to certain limits, by the Federal Deposit Insurance Corporation. Credit union CDs have similar coverage through the National Credit Union Administration. But be sure to ask before you buy one.

Similar to mutual funds but bought and sold on exchanges like stocks, ETFs are an increasingly popular IRA investment. Their major advantage is that their fees are usually lower than those of comparable mutual funds. For more on this product, read our Exchange-Traded Funds tutorial.

While the laws governing IRAs generally prohibit investing in collectibles, including coins and metals, they make some exceptions. Those include specific gold and silver coins minted by the U.S. Treasury; certain platinum coins; and gold, silver, palladium, and platinum bullion of a particular fineness. Click here for the Federal Trade Commission's useful – and cautionary – advice on precious metals investing. For more, see Analysis: Should You Get A Gold IRA? and Gold IRA Rollover.

You can invest in commercial or residential real estate through an IRA, although not for your personal use or that of another family member. The rules are complicated, so it's smart to seek the advice of a knowledgeable lawyer or tax pro. Otherwise you may risk falling into the IRS's prohibited transactions trap, which could nullify your IRA and require you to pay income tax on its entire value.

If you're thinking of investing in real estate primarily to diversify your IRA, there are easier ways, including a real estate investment trust (REIT), mutual funds and ETFs.

As with individual bonds, you can hold individual stocks in your IRA. However, there isn't as much of a tax advantage because stock dividends and gains are taxed at a lower rate under the current laws.

Bear in mind that the financial institutions that serve as IRA trustees or custodians for your mutual funds and other securities may not handle alternative investments, such as precious metals or real estate. In that case you may have to establish a self-directed IRA with a different custodian. But tread carefully. As the Securities and Exchange Commission and North American Securities Administrators Association pointed out in a joint investor alert, self-directed IRAs are often part of the sales pitch used by investment swindlers. For more information, see Alternative Investments In Your IRA and Self-Directed IRA: The Right Move For You?

If you're wondering what else you can't invest in with your IRA, the list includes life insurance, artwork, antiques, gems, stamps and, alas, alcoholic beverages. You'll have to amass your wine cellar without Uncle Sam's help. For details, read 5 Investments You Can't Hold In An IRA/Qualified Plan.