Top 5 Investments you Can’t Hold in an IRA/Qualified Plan

November 19, 2021

For many Americans, an IRA or qualified plan is the best way to save money for the future. These accounts are straight-forward, traditional, and easy to use, which is a large part of why Roth IRAs are so appealing to the average person. A lot of the time, people opt to open an IRA account alongside their work-backed retirement plan, as Roth IRAs have access to a wider range of investments.

While you are limited with how you can use the money in your 401(K), you have a lot more freedom when it comes to a Roth IRA account. Pretty much any type of investment is acceptable inside an IRA, and the same goes for a qualified plan. But, there are some things that you cannot do with the cash in this account. In this guide, we’ll be taking a look at the top 5 investments that you can’t hold in an IRA or qualified plan. So to find out more, keep on reading.

What is an IRA?

First things first, let’s take a look at what an IRA is. An IRA is a ‘Individual Retirement Account’, and it is essentially a savings account that can be used by people who want to save over a long period of time, preparing for their retirement. This is often a better way to save for retirement, rather than using a regular savings plan, because IRAs allow you to save money in a tax-advantaged way. This is possible because you can make contributions to your IRA, using money deducted from your tax return, so this money will be able to grow tax-free until you remove it when you retire.

What is a Qualified Plan?

But what about a qualified plan? While Roth IRAs are independent of your employer, qualified plans are not. Qualified plans are employer-sponsored, and because of this, they qualify for special tax relief. So, with a qualified plan, you do not have to pay income tax on any amounts that are added to this plan by your employer. That is, until you withdraw the funds upon your retirement. So, just like an IRA, you will be able to save for your retirement in a qualified plan while also getting tax-advantages.

What is a Prohibited Transaction on an IRA?

Before we take a look at what investments are not allowed on an IRA, let’s quickly talk about prohibited transactions on an IRA. A lot of people think that these two categories are the same, but this isn’t the case. A prohibited transaction is different from the investments that are not allowed in an IRA, so let’s take a look at why.

The investments that are not allowed in an IRA, are types of investments which you will not be able to complete with the money in your IRA. Prohibited transactions are actions that cannot be completed with this account. This includes things such as sending yourself cash from your IRA, using it as collateral for a bank loan, buying property with it, and so on.

So, it is very important that you do not get these two things confused when we speak about the investments that you cannot hold in an IRA. Now, with no further ado, let’s take a look at what these investments are.

Investments You Can’t Hold in an IRA

To find out the investments that you cannot hold in your Roth IRA account, keep on reading.

Types of Derivative Positions

One of the first things that the IRA prohibits is any type of derivative trade with unlimited or undefined risk. Derivative trading includes things such as ratio spreads, and naked call writing. The main reason for this is that derivative trading goes completely against everything that the Roth IRA accounts stand for. The whole point of Roth IRAs is that they allow individuals to save money for their retirement, Roth IRAs are supposed to be secure, and derivative positions definitely are not. So, the first form of investment which is not allowed in an IRA account is derivative positions. The only type of derivative position that is allowed is covered call writing.


Likewise, you also cannot use your Roth IRA to invest in either collectibles or antiques either. While this may seem like a good way to invest your money, any cash spent on both collectibles and antiques is not suitable for an IRA. This is because the profit that is made upon the sale of that item will not be shielded against tax. So, you will actually end up paying tax on the income entering your Roth IRA, even though you aren’t supposed to. Things that could be considered to be antiques or collectibles might include furniture, stamps, comics, porcelain, jewelry, diamonds, and collectible toys. So, if you were considering investing your IRA in any of these, you should think again, because you will not be able to hold these in your Roth IRA account.

Most Coins

Another type of investment that you cannot complete with your IRA money is investment in coins. Technically speaking, a lot of people collect coins, and so they could be considered to be collectible. But for the purpose of making this simpler, let’s categorize these separately. Not all coins are banned investments for the IRA account, but the majority are. This is because they are usually made of precious metals, such as gold. But, there are some coins which are allowed, these include American Eagle coins, American Gold Buffalo coins, and Canadian Maple Leaf coins. If you want to deposit these coins into your Roth IRA, they cannot be seen as a collectible, they have to look like a pure coin. The currency value of the coin must exceed the value as a collectible in order for it to be accepted into the Roth IRA.

Life Insurance

So far, the criteria for Roth IRAs and Qualified Plans have been the same in terms of what you can/cannot invest. With Roth IRAs, you absolutely cannot use these in any life insurance contract. This goes against the rules laid out for Roth IRAs, so you cannot hold whole life plans, universal, or term life insurance policies in your Roth IRA. Generally speaking, you cannot hold life insurance policies in qualified plans either. However, there is one exception to this rule. This rule dictates that qualified plans are allowed to purchase a single small amount of life insurance for the plan-holder. But, the money that would be collected upon the plan-holder’s death has to be very low compared to the figure that is in their account. After all, qualified plans were designed for retirement, not inheritance.

Real Estate for Personal Use

Finally, you cannot use your Roth IRA to invest in real estate that will then be used personally. This doesn’t mean that you cannot hold real estate within your IRA, you can do this, that real estate simply cannot be used for personal benefits. So, while that property is in your IRA, you cannot get any benefits from it. This means that you cannot get any rental income from that property, or even live in the property yourself. That is why real estate isn’t the best investment for your Roth IRA, even though it is allowed.


In short, in this guide, we have taken a look at the investments that cannot be held in both a Roth IRA and a Qualified plan.

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