What investments are not allowed in a Roth IRA? A plain guide

Quick overview: What investments are not allowed in a Roth IRA and where roth ira crypto fits

Short answer, up front: the IRS expressly disallows collectibles, such as antiques, art, most coins, and similar tangible personal property, and it also excludes life insurance contracts from IRAs; this is stated in the IRS publications that govern IRAs.

At the same time, the IRS treats virtual currency as property for federal tax purposes, which means crypto can be held in an IRA in principle, but custody, recordkeeping, and the tokens legal characteristics affect whether a specific holding is practical or permitted.

Why this matters: putting a disallowed asset or entering a prohibited transaction can lead to excise taxes or even disqualification of the IRA, and practical limits like custodian policies often determine what you can actually hold.

The IRS sets the basic rules in its IRA publications and retirement topics pages, and those remain the primary references for what is explicitly allowed or barred in an IRA; custodians then implement acceptance policies that may be more restrictive.

Fast answer: Which assets are explicitly not allowed in an IRA

Statutory and publication-based prohibitions

Collectibles and life insurance contracts are explicitly barred from IRAs in IRS authority, so these are the clearest “no” items when you review permissible assets Publication 590-A.

Quick checklist to spot disallowed assets

If an asset is a tangible collectible or a life insurance contract, it is not permitted in an IRA.

Other holdings may be allowed in principle but blocked by other rules, for example prohibited transactions with disqualified persons or custodian acceptance policies that refuse certain alternative assets.

Definitions and context: IRAs, Roth IRAs, custodians, and self-directed accounts

What a custodian does and why their acceptance policy matters

A custodian holds IRA assets, keeps records, and reports distributions to the IRS; custodians also set asset-acceptance policies that determine whether a particular nontraditional holding is operationally supported.

Custodian acceptance is separate from IRS permissibility, so even if the tax rules would allow an asset in theory, a custodian can refuse it or require specific documentation before accepting it.

What is a self-directed IRA and how it differs

A self-directed IRA is an account structure that allows a wider range of assets, including some alternative investments, but it also shifts more compliance duties to the account owner and increases the risk of prohibited transactions if related parties are involved.

Using a self-directed IRA typically requires careful recordkeeping, written custodian approvals for unusual assets, and an understanding that the custodians role is administrative rather than advisory.

Collectibles and life insurance: the explicitly barred assets

What counts as a collectible

The IRS describes collectibles broadly as tangible personal property used for personal enjoyment or collection, and examples commonly cited include antiques, works of art, most coins and stamps, and similar items Publication 590-B.

Because collectibles are specifically excluded from IRA holdings, attempting to transfer such items into a Roth IRA can create immediate tax complications and potential penalties.

Why life insurance contracts are excluded

Life insurance contracts are also excluded from IRA investments under IRS rules, which affects strategies that try to mix insurance and retirement accounts into a single product.

Account owners should treat life insurance and IRA planning as separate decisions and avoid moving insurance contracts into an IRA structure or claiming that an insurance policy is an IRA-eligible asset.

Prohibited transactions and disqualified persons: a common trap

What is a prohibited transaction under section 4975

A prohibited transaction generally involves self-dealing or an improper transfer between an IRA and a disqualified person; these transactions can disqualify the IRA and trigger excise taxes under federal tax law IRS prohibited transactions guidance.

Examples include selling property to your IRA, using IRA assets for personal benefit, or engaging in certain leasing or service arrangements between the IRA and the account owner or close relatives.

Who counts as a disqualified person

Disqualified persons commonly include the account owner, the owners spouse, ancestors, lineal descendants, fiduciaries, and certain service providers, and transactions involving these people deserve extra scrutiny to avoid section 4975 exposure.

When you consider a private placement or a deal that involves family members or business partners, assume extra documentation, written custodian approval, and, in many cases, professional tax advice are needed to reduce risk.

Private placements and direct ownership of operating businesses in a Roth IRA

Why private deals can trigger disqualified-person rules

Direct ownership of an operating business or a private-placement interest by an IRA can create disqualified-person conflicts when the account owner or a related person benefits from transactions between the business and the IRA.

Because these structures often involve governance and control questions, many custodians either decline to accept such holdings or require detailed documentation and written pre-approval before allowing them.

UBIT and governance complications

Holdings that generate active business income or that are acquired using debt may trigger unrelated business taxable income, which can create taxes inside the IRA even for retirement accounts.

For private placements and operating businesses, get written custodian approval, document valuation and governance arrangements, and consult tax counsel to evaluate prohibited-transaction and UBIT risks.

roth ira crypto: IRS treatment of virtual currency and practical custody issues

IRS Notice 2014-21 and what ‘property’ means for tax purposes

The IRS treats virtual currency as property for federal tax purposes, so crypto transactions are taxed like property exchanges and the same tax characterization informs whether tokens can be held in an IRA Notice 2014-21.

Property treatment means cryptocurrencies are not automatically excluded from IRAs by virtue of being crypto, but treatment as property also brings recordkeeping and valuation expectations that matter for retirement accounts.

Practical custody and recordkeeping concerns for crypto in IRAs

Operationally, the big issues are custody, clear ownership records, and whether a custodian will accept the particular token or token structure; custodians vary in policies and operational approaches Tax Foundation analysis of crypto IRAs.

Keeping personal control of private keys while claiming the asset is in an IRA is a common audit trigger, so investors should only hold crypto in an IRA when custody and transaction records can be verified by the custodian.

NFTs and collectible-like tokens: when crypto becomes a collectible

How characterization affects tax and IRA permissibility

Some NFTs or tokens that are primarily personal-use or represent digital collectibles may be treated similarly to physical collectibles, which can make them problematic for IRA ownership if authorities or custodians view them as collectible-like.

Because legal characterizations of novel tokens evolve, treat NFTs that have clear personal-use features as higher risk for inclusion in an IRA and seek case-by-case verification.

Examples of tokens that may be treated as collectibles

Digital artwork, collectible-only tokens tied to personal enjoyment, or tokens that grant personal privileges without a clear investment structure are the kinds of crypto assets that may resemble collectibles for tax purposes.

When in doubt, request written custodian guidance and consult tax counsel before transferring such tokens into a Roth IRA.

Custodians, approval processes, and recordkeeping best practices

How to verify whether a custodian accepts an asset

Custodians set acceptance policies, and many decline particular alternative assets even if the IRS does not explicitly ban them; checking a custodians written policy is the first step when you consider a nonstandard holding IRS prohibited transactions guidance.

Ask the custodian for written pre-approval for unusual assets, and request a description of how they will hold and value the asset on the accounts books.

Documentation and pre-approval steps

Document the asset transfer with receipts, custodial confirmations, valuation methods, and custody proof, and retain those records in case of future audit or questions about ownership.

Working with custodians experienced in alternative assets and keeping all approvals in writing reduces the likelihood of disputes and excise-tax exposure.

UBIT and UDFI: tax traps for active or leveraged investments inside IRAs

When unrelated business taxable income applies

Unrelated business taxable income can apply when an IRA earns active business income from a trade or business, and those rules can lead to tax inside an otherwise tax-advantaged account Tax Foundation analysis of IRA tax traps.

Examples include certain private business operations and some types of partnership income that are not passive investment returns.

How debt-financed investments can trigger UDFI

If an IRA holds an asset purchased with debt or if leverage is used inside the account, unrelated debt-financed income rules may cause taxable UDFI, which requires separate reporting and can reduce the tax advantages of a Roth IRA.

Investors considering leveraged or active investments inside a Roth IRA should consult tax counsel and discuss UBIT/UDFI exposure with their custodian before proceeding.

A practical decision checklist: can you put this asset in your Roth IRA?

Quick yes/no decision flow

Start with a narrow list of yes/no questions: Is the asset a collectible or life insurance contract? Does the custodian accept it in writing? Will the holding involve related parties or active business income?

If any answer raises a red flag, pause and seek written custodian approval and tax counsel rather than proceeding informally.

Questions to ask your custodian or tax advisor

Request written acceptance, ask how the asset will be custodied and valued, request sample account statements that show the holding type, and confirm whether custody of private keys or physical items is required by the custodian.

Keep copies of every approval, valuation, and transaction receipt to support the accounts tax treatment and to reduce audit risk.

Common mistakes, audit triggers, and how to avoid excise taxes

Typical errors that lead to prohibited transactions

Common mistakes include using IRA assets for personal benefit, transferring a collectible into the IRA, engaging in sales between the IRA and a disqualified person, and failing to get written custodian approval for unusual holdings Publication 590-A.

These missteps can trigger excise taxes under section 4975 and, in severe cases, lead to the IRA losing its tax-advantaged status.

Recordkeeping and documentation to avoid audits

Separate personal and IRA activity, keep receipts and custodial confirmations, document valuation methods, and archive written approvals and emails about acceptance and custody.

Consistent, organized records are a simple way to reduce audit exposure and to show that you complied with custodial procedures and IRS rules.

Practical examples and scenarios: how different assets play out in practice

Example 1: buying cryptocurrency through a custodian-approved vehicle

When custody, valuation, and transaction records are maintained by the custodian, this setup reduces the most common audit triggers and aligns practice with the IRSs property treatment for virtual currency Notice 2014-21.

Example 2: attempting to put an NFT or rare collectible into your Roth IRA

Scenario: an owner wants to transfer a unique NFT tied to digital art that has strong personal-use characteristics; because the token may resemble a collectible, the custodian may refuse and tax counsel would likely recommend against the transfer.

In such cases, documented custodian refusal or written cautionary guidance is valuable: it preserves a clear paper trail and helps avoid inadvertent prohibited transactions or excise-tax exposure.

Conclusion: key takeaways and next steps

Summary of what is not allowed

Key takeaways: collectibles and life insurance contracts are expressly disallowed in IRAs, and prohibited transactions with disqualified persons can create excise-tax exposure and account disqualification Publication 590-B.

Practical next steps and verification

Before you add any unusual asset to a Roth IRA, verify custodian policies in writing, seek pre-approval, keep detailed custody and valuation records, and consult tax counsel for private placements or novel token types.

FinancePolice aims to provide plain-language context so you can ask the right questions and verify details with primary sources and a qualified advisor.