Investing IRAs in non-traditional assets

The following excerpts are from Deborah L. Jacobs, Putting an I.R.A. to Work in Ventures Beyond Stocks, N.Y. Times, Oct. 23, 2008:

At a time when many I.R.A. portfolios are being battered by poor stock market returns, it is tempting to look for ways to replenish the coffers. One possibility is to switch to investments not traditionally associated with I.R.A.’s, like real estate and new business ventures. * * *

[N]ontraditional investments may encounter legal pitfalls not associated with more conventional retirement assets, like stocks, government bonds, C.D.’s and mutual funds. The most dangerous trap for the unwary is the regulation on self-dealing — a legal principle that prevents I.R.A. owners from making investments that benefit themselves or certain family members, even indirectly. * * *

Large financial institutions, which generally serve as custodians or trustees for the I.R.A. owner, usually stick with stocks, bonds and mutual funds, or their own financial products.

But an industry of about two dozen smaller firms has emerged that will serve as custodians of real estate and a wide range of exotic investments, from chicken manure to cypress tree farms. I.R.A.’s are not allowed to own life insurance, collectibles (like stamps, art or antiques) or stock in small partnerships known as Subchapter S corporations.

Special thanks to Matthew B. Bogin (attorney, Rockville, Maryland) for bringing this article to my attention.