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Investments that are restricted
Once you have money in your IRA you can direct the custodian company to use tit to purchase most types of securities that are traded publicly as well as those that are non-publicly traded. However, some investments are restricted. For example, you are not allowed to use collectibles such as art, rare coins and baseball cards to fund your IRA. In addition, life insurance cannot be held in an IRA.
Beyond this, some custodial companies have their own restrictions. Many of them allow IRA participants to make investments only in traditional brokerage accounts such as bonds, stocks and mutual funds. IRAs can also hold publicly traded securities such as futures, options or other derivatives though some custodian companies will not allow this.
Withdrawing funds from an Individual Retirement Account
The money in your Individual Retirement Account is your money and you can actually withdraw it at any time although there may be penalties. Once you reach age 59 1/2 you can begin taking distributions without penalties and without having to pay taxes on the money. When you reach the age of 70 1/2 there is a required minimum distribution that you must take each year or the penalty will be 50% of the amount of money that you should've taken.
What happens in the event of a bankruptcy?
Our Supreme Court ruled unanimously that a debtor in bankruptcy can exempt her or his Individual Retirement Account, up to the amount necessary for retirement. In 2005 the Bankruptcy Abuse Prevention and Consumer Protection Act expanded the protection for certain IRAs. So now Simple IRAs, SEP IRAs, Roth IRAs and individual IRAs are exempt in the case of a bankruptcy up to at least $1 million without having to show the necessity for retirement.
Borrowing from your IRA
There is a two-month window in each calendar year where you are permitted to borrow money from your Individual Retirement Account . During this window, you could take a 60-day loan from your Traditional IRA interest-free. It's important to repay the money within that 60-day window and this is calendar days and not business days. If you fail to repay the money within those 60 days, the money will be considered a distribution from the account and you will pay income tax on it. If you take the distribution early – before age 59 1/2 – you would likely incur an additional 10% penalty.
As the following video explains, borrowing from an IRA is basically a short term loan and something you can do just once a year.