A Self-Directed IRA (SDIRA) can hold a wide range of assets, but the Internal Revenue Code specifically prohibits a small number of asset types — this article covers the collectibles rule under IRC §408(m), the life insurance rule under IRC §408(a)(3), and the practical problem with holding S-corporation stock inside an IRA.

There are two fundamentally different kinds of "you can't do that" rules for IRAs. Relationship-based rules — the prohibited-transaction framework under IRC §4975 — depend on who the IRA is dealing with. Asset-based rules depend on what the IRA is buying or holding, regardless of who the counterparty is.

This article covers the asset-based restrictions. For the relationship rules, see "Prohibited transactions — what they are and why they matter" and "Disqualified persons — who counts and why".

The IRS does not publish a list of what an IRA can invest in. The framing in the law is the opposite: an IRA can invest in anything except a small set of explicitly prohibited categories. Most alternative assets people associate with Self-Directed IRAs — real estate, private equity, promissory notes, cryptocurrency — are permitted because they aren't on the prohibited list, not because they appear on a permitted list.

Internal Revenue Code (IRC) Section 408(m) prohibits an IRA from investing in collectibles. If an IRA acquires a collectible, the cost of that collectible is treated as a distribution to the account holder in the year of the acquisition — taxable as ordinary income, and subject to the 10% additional tax under IRC §72(t) if the holder is under age 59½.

The statute defines "collectible" broadly:

This is a wide net. It deliberately catches the kinds of physical, often-appreciating assets people might otherwise want to hold inside a retirement account.

The collectibles rule has carefully drawn statutory exceptions for certain precious metals and coins. An IRA may hold:

Coins that do not meet the fineness standard — collectible numismatic coins, rare coins, proof sets held for their rarity rather than metal content — fall under the general collectibles prohibition and cannot be held in an IRA, even if they're otherwise common precious-metal coins.

The storage rule is part of the exception, not a separate rule: bullion and approved coins must be held by an IRS-approved custodian. Personally storing the metals — for example, in a home safe — defeats the exception and converts the asset into a deemed distribution. See "Precious metals — IRS rules and storage requirements" for the storage and custody mechanics.

IRC §408(a)(3) prohibits an IRA from investing in life insurance contracts on the account holder. This is a narrow but absolute rule. It applies to traditional life insurance policies — whole life, universal life, term — held inside the IRA structure. Annuity contracts are different and are generally permitted (and are in fact contemplated in other parts of §408).

The reason for the rule is structural: life insurance has its own tax-favored treatment under separate parts of the Code, and stacking IRA tax treatment on top would compound benefits Congress did not intend.

This restriction does not apply to employer-sponsored qualified plans like 401(k)s, which can hold a limited amount of life insurance under different rules. It applies to IRAs specifically.

Stock in an S corporation is not directly prohibited by the IRA statutes. The problem is on the S-corporation side: under Subchapter S of the Internal Revenue Code, an S corporation can only have a narrow set of permitted shareholders (individuals, certain trusts, certain estates). An IRA is not on the list of eligible S-corporation shareholders.

If an IRA acquires S-corporation stock, the corporation typically loses its S-election, reverting to C-corporation taxation. This is generally bad for the corporation and bad for the IRA — and it is the practical reason an SDIRA cannot effectively hold S-corp stock, even though the prohibition technically lives in Subchapter S rather than IRA law.

C-corporation stock is fully permitted in an IRA. So is membership in an LLC, including LLCs that have elected to be taxed as partnerships (the most common LLC structure in SDIRA investing).

A great deal of what makes an SDIRA useful is what isn't on the prohibited list. The following are all permitted IRA investments:

These investments are permitted because they are not on the §408(m) collectibles list, are not life insurance, and are not S-corporation stock. The fact that an asset is permitted does not mean it is automatically free of risk or free from the prohibited-transaction rules — those rules apply on top, regardless of the asset type. See "What happens if you make a prohibited transaction?" for what happens when those relationship rules are crossed.

The two rule sets stack. An investment can be:

Because the consequences differ between the two categories, knowing which rule was tripped matters for the response. A collectibles violation creates a deemed distribution of the cost of the collectible. A prohibited-transaction violation by the account holder can take down the entire IRA as of January 1 of the year the violation occurred. We recommend consulting a tax advisor or attorney for guidance specific to your situation.

Can an IRA hold cryptocurrency? Doesn't that count as a "tangible" or unusual asset?
Yes, an IRA can hold cryptocurrency. Crypto is not a collectible under §408(m), is not life insurance, and is not S-corporation stock. The IRS treats cryptocurrency as property for tax purposes, but it does not fall within any of the specifically prohibited asset categories.

My friend keeps gold coins in a home safe in his IRA's name. Is that allowed?
No. Even if the coins themselves qualify under the §408(m) bullion or coin exceptions, the exception requires that the metals be held by an IRS-approved custodian or trustee — not by the account holder personally. Personally storing IRA-owned metals defeats the exception and is treated as a distribution of the metals to the account holder.

Can my IRA buy stock in a small private company?
Generally yes — private C-corporation stock and LLC interests are both permitted assets. The cautionary note is that an investment in a closely held company can also create prohibited-transaction issues if the IRA holder, family members, or other disqualified persons own meaningful stakes in the same company. See "Disqualified persons — who counts and why" before pursuing this kind of investment.

Are there any "gray area" assets the IRS has not clearly ruled on?
Yes. New asset classes — emerging digital assets, certain tokenized real estate structures, fractional-ownership platforms — sometimes outpace clear IRS guidance. Digital Trust, the custodian for Retired.com accounts, follows IRS guidance and industry practice in deciding what it will custody, but the underlying tax characterization is ultimately the account holder's responsibility. We recommend consulting a tax advisor or attorney for guidance specific to your situation.

Select "Start a Conversation" from the Chat menu or call us at 1-800-RETIRED