An Individual Retirement Account (IRA) is a retirement savings cum investment plan that has tax rules and contribution limits that are set by the Internal Revenue Service. There are two main types called as Roth IRA and Traditional IRA, each having their own tax liabilities and benefits. However, the returns from these IRAs are entirely determined by the underlying investments that are made. Your account can include annuities, stocks, bonds, mutual funds, exchange-traded funds, unit investment trusts, real estate etc. among those which are most commonly considered as the best IRA investments. Since these investments are market dependent, it is important to pick those based on thorough considerations of the risks. It is preferable to have a diversification with a mix of investment types so that the gains of one product will even out the losses from another in the worst case. Here is a list of options which include some of the best IRA investments that most people do and another list of certain uncommon investment options from which you can choose from.
Invest in stocks: Consider your time horizon before deciding on which company you want to invest in. If you are looking at short-term (less than 5 years), then it makes sense to invest in a company that is already established and is faring well. If your time horizon is more than 10 years, then you must consider investing in companies that are making big breakthroughs in their specific markets by reshaping their business strategies and indicating big growths. Also, dividend-paying stocks are known to outperform their non-dividend paying counterparts. Since IRAs have tax -benefits, the dividend payments can compound over time and thus help in the growth of your retirement earnings at the time of withdrawals.
Convert into a Roth: Since the contributions into a Roth account are funded after tax-deductions, it would make more sense to have a Roth if you are likely to retire in a higher tax bracket. Compared to traditional IRA where the withdrawals are taxed, it is better to pay a known percentage upfront while you are still in the lower tax-slab. Since there is no limit on annual income eligibility and the amount of money that can be converted from a traditional IRA to a Roth account, a Roth is best suited for high-growth assets that can be held for a long time.
Use CD (certificate of deposit) laddering: Using CD ladder in a Roth IRA is one of the best IRA investments that allow setting disparate degrees of maturity and interest rates. Instead of having the entire money invested in one big CD, you can have your funds split across multiple CDs. Different rates of interest are set for different amounts that will be scheduled for maturity on different dates. This kind of eliminates the risk of losing out the entire investment money if it underperforms and also utilizes the gains if the market over-performs at any given time. Hence, gives better liquidity to your investments and eventually improve your rate of return, too.
Since the management of an IRA is difficult, a custodian is required to handle the account. For this reason, banks or mutual funds typically stick to the conventional offerings that are discussed above. However, you have many other alternative non-traditional options for an IRA investment. It would be nice to take a look at these investment approaches as well with at least some of your IRA assets. But, for the reason mentioned above, these investments are usually acquired and managed through self-directed IRAs.
Buy coins: Coins have been traded for value throughout history and gold or silver values are considered to be as almost stable or a safe investment option to counter crashing stock markets or high inflation rates. There are several types of coins minted by the U.S. Treasury Department that can be bought as investment from an IRA fund. They are gold coins (in 1-ounce, half-ounce, quarter-ounce and one-tenth-ounce denominations), silver coins (1-ounce) and some platinum coins. But, the advantage of having a near stable value is countered by the fact that coins don’t earn any interests or dividends. Hence, this must be seen as an investment only based on your situation.
Buy precious metals bullion: The IRS has permitted investments in bullion in silver or gold bars that can be bought with an IRA fund since 1997. The investment is evaluated based on the standards of purity of the bullion. Your minimum distributions for every year will be computed based on the annual valuation of your holdings.
Buy a private mortgage: A private mortgage company lets you lend money to a borrower from an IRA and the loan is secured by the property. If the value of the property goes up, you don’t earn profit but if the borrower fails to repay his loan, then your investment can earn you a real asset.
After discussing some best IRA investments that are both traditional and non-traditional in approach, there are few other investments that are prohibited by the IRS for IRA investments. Buying property for personal use (With certain discretions) and collectibles that include alcoholic beverages, artwork, antiques, stamps, precious gems, specific coins are not allowed with funds from a traditional IRA according to IRS guidelines.