Can you use IRA to buy stocks?

Can you use IRA to buy stocks? Yes — most IRAs (Traditional, Roth, SEP, SIMPLE and self-directed) can hold and trade stocks and stock-based vehicles, but custodian policies, IRS prohibited-transact...

2026-01-12 00:21:00

By Meta Cipher

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Can you use an IRA to buy stocks?

Can you use IRA to buy stocks is a common and practical question for investors building retirement savings. In short: yes — most Individual Retirement Accounts (IRAs) can own and trade public company stocks, ETFs and many other securities. This guide explains what an IRA is, which IRA types permit stock holdings, step-by-step buying procedures, custodian considerations, prohibited transactions, tax consequences, risks with private-company shares, and practical best practices. By reading this article you will understand how to hold stocks inside retirement accounts, what to avoid, and when to consult a tax or financial professional.

Overview of IRAs and investment flexibility

An Individual Retirement Account (IRA) is a tax-advantaged account established under U.S. tax law to help individuals save for retirement. IRAs shelter savings either by deferring tax on earnings (Traditional IRAs) or by allowing tax-free qualified withdrawals (Roth IRAs). The core principle is that the account — not you personally — holds investments.

Most IRAs can hold a wide variety of investment types: publicly traded stocks, ETFs, mutual funds, bonds, and cash equivalents. Some IRAs, especially self-directed IRAs, can also hold less common assets such as private-company equity, real estate and certain alternative investments. However, the IRS and custodians impose rules: certain asset classes (for example, collectibles and life insurance contracts) are prohibited inside an IRA, and transactions that benefit the account owner or other disqualified persons can trigger severe penalties.

This flexibility makes IRAs a useful vehicle to buy and hold stocks for long-term retirement goals, provided you follow custodian rules and IRS restrictions.

Which types of IRAs can hold stocks

Traditional and Roth IRAs

Both Traditional and Roth IRAs commonly allow the purchase and holding of individual stocks, ETFs and mutual funds. The operational difference between them is tax treatment:

Traditional IRAs: Contributions may be tax-deductible depending on income and participation in employer plans; earnings grow tax-deferred; distributions are generally taxed as ordinary income when withdrawn in retirement.
Roth IRAs: Contributions are made with after-tax dollars; eligible distributions (including earnings) are tax-free if the account meets holding/age requirements.

From a custody and trading standpoint, Traditional and Roth IRAs function similarly: you open the account with a custodian or brokerage, fund it, and place trades in the account name. Keep in mind contribution limits and early-withdrawal penalties when deciding how to fund or access the account.

SEP and SIMPLE IRAs

SEP (Simplified Employee Pension) and SIMPLE (Savings Incentive Match Plan for Employees) IRAs are employer-sponsored IRA arrangements for small businesses and self-employed persons. These accounts typically offer the same kinds of investment choices as Traditional IRAs, including stocks, subject to the custodian’s allowed product list. Employers select plan providers or custodians; the available investments and platform features depend on that provider.

Self‑Directed IRAs (SDIRAs) and IRA LLC / “checkbook control”

Self-directed IRAs expand the universe of allowable investments beyond publicly traded securities. With a self-directed IRA (SDIRA), account owners can direct custodians to acquire private equity, private company stock, real estate (investment properties), promissory notes and other alternative assets — provided the investments comply with IRS rules.

One structure used with self-directed IRAs is the IRA-owned LLC (often called an IRA LLC or "checkbook control" IRA). The IRA funds an LLC that the IRA owner (or a manager) controls for investment decisions. This setup can provide faster execution and direct control over purchases, but it does not change IRS prohibited-transaction rules: the IRA must not transact with disqualified persons, and income types that generate unrelated business taxable income (UBTI/UBFI) can create tax issues.

Using SDIRAs and IRA LLCs typically requires specialized custodians or trust companies able to custody alternative assets and prepare necessary valuations and tax reporting.

How to buy stocks inside an IRA (practical steps)

Choose a custodian or brokerage. Decide if you need a standard brokerage IRA or a self-directed IRA for more exotic holdings. For stock trading in retirement, many mainstream custodians allow commission-free trading of public stocks and ETFs; specialized custodians are needed for private shares.
Open the IRA account. Complete the custodian’s application for a Traditional, Roth, SEP, SIMPLE or self-directed IRA. Provide required identity and tax information.
Fund the IRA. Fund through contributions (subject to annual contribution limits), rollovers from qualified plans (401(k), etc.), or transfers from other IRAs. Rollover and transfer processes are different from new contributions and are commonly used to move larger sums into an IRA without being limited by yearly contribution caps.
Confirm allowed assets and trading permissions. Check your custodian’s list of permitted securities and trading permissions (options, margin, shorting). For public stocks, most custodians provide an online trading platform.
Place buy/sell orders in the IRA name. Use the custodian’s trading interface to enter market, limit or conditional orders. The IRA — not you personally — is the buyer or seller.
Follow settlement and contribution rules. Trades settle according to standard rules (typically T+2 for equities historically, though settlement timing can vary), and you must ensure you have settled cash for purchases when required by your custodian.
Monitor holdings and tax reporting. The custodian provides account statements and tax forms as applicable (for example, 1099s for certain taxable events). For self-directed assets, additional valuation and reporting may be necessary.

Custodians, brokerages and platform considerations

The custodian you choose matters for what you can buy, how you trade, and what fees you pay. Key considerations:

Product availability: Some custodians support a broad range of public securities with $0 stock trading; others specialize in private assets or alternative investments. If you plan to hold private-company shares in an IRA, choose a custodian that explicitly supports private-stock custody.
Trading features: Compare order types, mobile/web platforms, execution quality and supported strategies (options, conditional orders).
Margin and shorting policies: Many custodians restrict margin loans and short selling in IRAs because retirement accounts generally cannot use borrowed funds in the same way taxable margin accounts can.
Fees: Custody fees, account maintenance fees, alternative-asset setup fees and transaction fees can vary widely. Self-directed custodians often charge setup and annual fees for nonstandard assets.
Reporting and valuation: For illiquid or private holdings, custodians must produce fair market value (FMV) reporting; ensure you understand how valuations are handled and how often they are updated.

When choosing a platform for digital-asset or Web3 holdings, consider using Bitget Wallet for on-chain custody and Bitget exchange for trading-related services, while being mindful that retirement accounts require qualified custodians and may not hold retail exchange accounts directly. Bitget’s educational resources and platform features may be helpful for investors exploring crypto-related custody outside of retirement accounts.

Allowed investments vs. prohibited investments/transactions

Generally allowed

Typical assets widely permitted inside IRAs include:

Public company stocks (individual equities)
Exchange-traded funds (ETFs)
Mutual funds
Corporate and U.S. government bonds
Money market instruments and cash equivalents
Certain options strategies (subject to custodian approval)

IRS‑prohibited investments/transactions

The IRS disallows certain assets and transactions inside IRAs, including:

Collectibles (art, antiques, rugs, gems, stamps, coins with collector value, most alcoholic beverages)
Direct ownership of life insurance contracts
Transactions that constitute "self-dealing" or benefit a disqualified person (more on this below)

Prohibited transactions include selling, leasing, lending, or furnishing goods, services or property between the IRA and a disqualified person (for example, the account owner, certain family members, or entities they control). Violating these rules can cause the IRA to be treated as distributed, creating immediate tax consequences and possible penalties.

Special rule: investments in companies you control

You generally cannot use an IRA to buy stock in a company that you personally own or control if the transaction benefits you directly. For example, if you own a private company personally or are an officer/owner, having your IRA buy equity in that company may be a prohibited transaction or self-dealing. Similarly, if a disqualified person sells assets to your IRA, that sale can trigger disqualification.

These rules are strict: transactions between an IRA and disqualified persons often result in the IRA being disqualified (treated as distributed) from the date of the prohibited transaction, causing immediate taxation and penalties. Always consult a custodian and tax adviser before attempting to place related-party investments in an IRA.

Trading rules and restrictions inside an IRA

Active trading and pattern‑day trading

Active trading is possible inside many IRA accounts, but practical limitations exist. Cash account settlement rules mean you must have settled cash to cover purchases. Some brokerages permit frequent trading within IRAs, but pattern‑day‑trader rules apply if margin or margin-like credit is used.

Because most IRAs do not permit margin loans, pattern‑day‑trader margin rules are less likely to apply. However, brokers may impose their own restrictions if you try to execute numerous same-day trades without settled funds. Check your custodian’s policy on day trading in retirement accounts.

Margin, short selling and options

Margin: Margin borrowing is generally restricted or unavailable in IRAs because the account cannot pledge assets in the same manner as taxable margin accounts. Some brokers offer limited margin-like features for certain strategies, but these are exceptions and must be fully disclosed.
Short selling: Short sales are frequently unavailable in IRAs because they require margin and the potential for unlimited losses. When shorting is allowed, the custodian will outline the requirements.
Options: Options trading can be permitted in IRAs but only after the broker approves the account for specified option levels. Conservative option strategies (covered calls, cash-secured puts) are more commonly allowed than naked calls or complex spreads that require margin.

Tax traps: UBTI / UDFI and unrelated debt-financed income

If an IRA invests in an active business or uses leverage, the account may generate unrelated business taxable income (UBTI) or unrelated debt-financed income (UDFI). When UBTI or UDFI exceeds certain thresholds, the IRA may owe tax on that income. This is particularly relevant for IRAs that hold interests in partnerships or debt-financed real estate. Self-directed investors should understand potential UBTI/UDFI consequences and review custodian reporting and IRS guidance.

Tax consequences and withdrawal/distribution rules

Tax treatment of IRA distributions depends on account type:

Traditional IRA: Contributions may be tax-deductible; earnings grow tax-deferred; distributions are taxed as ordinary income. Withdrawals before age 59½ may face a 10% early-withdrawal penalty (with exceptions).
Roth IRA: Contributions are after-tax; qualified distributions of earnings are tax-free if the account has been open for five years and the owner is at least 59½ (or other qualifying exceptions apply). Roth contributions (not earnings) can generally be withdrawn tax- and penalty-free at any time.

Contribution limits are set annually (for example, the 2024 combined Traditional/Roth limit was $7,000 for those under age 50, with catch-up contributions for older savers — check current-year limits). Rollovers and transfers move assets between qualified plans and IRAs without counting against annual contribution limits when done correctly.

Roth conversions are a way to move pre-tax IRA assets into a Roth IRA by paying income tax at conversion; this can be a strategic move but has tax implications and should be evaluated with a tax adviser.

Holding private-company or startup shares in an IRA

IRAs can hold private-company or startup shares in some cases — but this requires specialized custodians and careful compliance.

Key mechanics and caveats:

Custodian acceptance: Not all custodians accept private securities. You need a custodian that supports private-stock custody and valuation.
Valuation and reporting: Private holdings must be valued at fair market value (FMV) at reporting intervals. Illiquid asset valuations often require third-party appraisals or custodian valuation processes.
Contribution and transfer rules: Moving private shares into an IRA can be complex. If the transfer is treated as a contribution, it may be subject to annual contribution limits; a rollover may not be available for privately held shares.
Liquidity and risk: Private shares can be highly illiquid, difficult to price and may be subject to restrictions on resale.
Prohibited-transaction risk: Buying shares of a company you control or receiving benefits from the company while the IRA holds its stock can trigger prohibited-transaction rules.

Because of these complexities, many investors use specialized self-directed IRA custodians or trust companies for private equity investments, and they consult legal and tax professionals before proceeding.

Risks, compliance and prohibited‑transaction enforcement

The primary compliance risk is engaging in prohibited transactions or self-dealing. Examples include: using IRA funds to buy property from yourself, lending IRA funds to a disqualified person, or receiving personal benefit from IRA-owned assets. The IRS treats prohibited transactions seriously: consequences can include immediate taxation of the IRA’s value and penalties.

Other risks:

Custodian errors or misunderstandings about allowed investments
Incorrect valuation of illiquid assets, creating tax reporting problems
UBTI/UDFI tax surprises for leveraged or active-business income
Liquidity constraints when trying to sell private assets for distributions or required minimum distributions (RMDs)

To reduce risk, work with a custodian experienced in the assets you plan to hold, document transactions, and seek professional tax and legal advice for complex arrangements.

Common practical questions (FAQ-style brief answers)

Can you buy more stocks than the annual IRA contribution limit? — You can hold large stock positions inside an IRA through rollovers and transfers or via appreciation inside the account; annual contribution limits only limit new contributions, not transfers or rollovers.
Can you day trade in an IRA? — Possibly, but custodial rules, cash-settlement timing and margin restrictions often limit frequent pattern-day trading in IRAs.
Can an IRA buy stock in my own company? — Generally no; transactions with disqualified persons or self-dealing can trigger prohibited-transaction rules and disqualify the IRA.
Can you hold private startup shares in an IRA? — Yes with specialized custodians, but valuation, liquidity, contribution treatment and prohibited‑transaction rules require careful handling.
Can you use funds from an IRA to buy a home? — Traditional IRAs allow a first-time homebuyer distribution exception up to a defined limit without the 10% penalty in certain circumstances; Roth contributions may be withdrawn tax- and penalty-free. Note: As of the reporting date below, legislative proposals may affect 401(k) rules, but IRAs have different, established exceptions and mechanics.

Policy context and recent news affecting retirement-account withdrawals

截至 2024-01-17，据 MarketWatch 报道，特朗普政府曾提出一项计划，拟允许人们更方便地从退休储蓄（如 401(k) 计划）中提取资金用于购房，同时可能免除 10% 的提前取款罚金（仍需缴纳所得税）。该提案提出了将取出款项再作为房屋权益放回账户的构想，但在现行体系下，401(k) 与个人住房之间的回补机制并不存在。

Why this matters for IRAs: IRAs already have some home‑buyer exceptions (for first‑time homebuyers under certain rules, Traditional IRAs allow penalty-free withdrawals up to a limit). Proposed 401(k) rule changes could shift how people access retirement funds for housing, but any legislative change would require congressional action and would not automatically change custodian or plan sponsor policies. The news underscores a broader policy tension: withdrawing retirement savings to meet near-term goals can create long-term "leakage" from retirement accounts and harm retirement security if funds are not replenished.

This context is relevant when deciding whether to use IRA funds rather than other financing options to buy non-investment property. Consider long-term retirement implications and consult a financial professional before withdrawing retirement funds for near-term purchases.

Best practices and considerations before buying stocks in an IRA

Pick the right custodian: If you plan to trade public stocks, choose a broker with the trading features, fees and execution you need. If you plan private or alternative investments, select a self-directed custodian with experience in those assets.
Read custodial agreements carefully: Understand allowed and disallowed investments, fees for alternative-asset custody, and procedures for transfers and rollovers.
Avoid prohibited transactions: Never engage in transactions between your IRA and disqualified persons without professional guidance.
Understand tax consequences: Know the differences between Traditional and Roth IRAs, contribution limits, RMDs and tax implications of rollovers and conversions.
Be cautious with illiquid assets: Private shares and real estate can complicate distributions and valuations; ensure you can meet future distribution needs (including RMDs).
Document everything: Keep clear records of transfers, valuations and custodian communications.
Seek professional advice: For complex investments (private placements, checkbook IRAs, business investments), consult a tax adviser, ERISA attorney or experienced custodian.
Leverage trusted platforms: For custody and trade execution of digital assets outside of retirement accounts, consider Bitget Wallet and Bitget’s educational resources; for IRA-specific activities, rely on qualified custodians and trustees.

Actions you can take next

If you want to trade public stocks in an IRA, compare custodians for fees and trading features and open an IRA with a provider that matches your needs.
If you are exploring private-company holdings or real estate inside an IRA, contact a self-directed IRA custodian and a tax professional to review prohibited-transaction rules and valuation requirements.
To learn more about crypto custody and on-chain asset management outside of retirement accounts, explore Bitget Wallet and Bitget educational content.

Further exploration of IRA mechanics and custodian offerings will help you use retirement accounts to hold stocks safely and compliantly.

The content above has been sourced from the internet and generated using AI. For high-quality content, please visit Bitget Academy.