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Financial Q&A: Why artwork and IRAs should never mix

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Q: Is it possible to purchase artwork using a Roth IRA?

M.M., via e-mail

A: In a word, no. In many words, Paul Burkemper, president of St. Louis-based Burkemper Group, would point you to Internal Revenue Code 408(m)(2); Prop. Reg. 1.408-10, which discusses prohibited investments for IRAs that include collectibles such as antiques, precious gems and metals, rugs, stamps or coins, works of art, and alcoholic beverages.

One reason for this regulation is that the value of these types of investments is very subjective, says Mr. Burkemper, and therefore very difficult for the IRS to monitor.

Bear in mind that if you invest in a prohibited investment (such as artwork) inside of your IRA, the entire IRA will then be considered distributed as of Jan. 1 of that year. It will then be fully taxable, and if you're younger than 59-1/2, there's also a 10 percent penalty.

If you're considering investing in nontraditional investments with your IRA money, consult an expert first. Even if the investment is deemed suitable, Burkemper advises further protecting yourself by establishing a separate IRA for each nontraditional investment. That way, if the IRS disagrees with your suitability assessment and deems it a prohibited transaction, only the assets in that IRA will face taxes and penalties.

Q: My mother, who I take care of, has her assets in an account with a broker I trust. Should I keep it all in there with the Wall Street crisis? It is diversified with stocks, bonds, and mutual funds.


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