Investing in Alternative Assets With a Roth IRA: What's Allowed

Roth IRA alternative investments are allowed for nearly every asset class including real estate, private equity, farmland, art, and private credit. You need a self-directed IRA custodian to access these investments since traditional brokerages like Fidelity and Schwab restrict you to publicly traded securities. The payoff is massive: all gains grow and are withdrawn completely tax-free.

Why Use a Roth IRA for Alternatives?

The Roth IRA is the single most powerful tax shelter available to individual investors. You contribute after-tax dollars, gains compound tax-free, and qualified withdrawals after age 59 1/2 owe zero taxes. Apply that structure to alternative investments generating 10-15% annual returns, and the tax savings over decades are substantial.

Consider a $50,000 Roth IRA alternative investment earning 12% annually for 20 years. It grows to $482,000. In a taxable account at a 32% marginal rate with annual distributions, you'd accumulate roughly $310,000 after taxes. That's a $172,000 difference from the same investment in the same deal, just held in a different account type.

Roth IRA alternative investments also avoid the required minimum distributions (RMDs) that force traditional IRA holders to withdraw and pay taxes starting at age 73. Your alternatives can compound untouched for as long as you live.

What Alternative Investments Can a Roth IRA Hold?

Allowed Investments

The IRS defines prohibited investments narrowly. Nearly everything else is permitted:

• Real estate (rental properties, syndications, REITs, crowdfunded deals)
• Private equity and venture capital fund interests
• Private credit and peer-to-peer lending
• Farmland and timberland
• Precious metals (specific coins and bullion meeting purity standards)
• Cryptocurrency (through qualified custodians)
• Fine art (fractional shares through platforms)

Prohibited Investments

The IRS prohibits three categories inside any IRA:

• Life insurance policies
• Collectibles (artwork you physically possess, antiques, rugs, gems, stamps, most coins, alcoholic beverages). Note: fractional art platforms like Masterworks structure investments as securities, which may avoid the collectibles prohibition.
• S-corporation stock (IRAs cannot be S-corp shareholders)

Everything else is fair game, subject to finding a custodian willing to hold it.

Platforms That Support Roth IRA Alternative Investments

Alto IRA

Alto IRA connects your Roth IRA to alternative investment platforms through its partner network. You can invest in deals on platforms like Masterworks, AngelList, and various real estate crowdfunding sites directly from your Alto account. Alto charges annual account fees starting around $50-$150 depending on the plan.

Alto handles the custodial paperwork, tax filings, and compliance requirements. Their CryptoIRA product also provides access to cryptocurrency within the Roth structure.

Rocket Dollar

Rocket Dollar takes a different approach by giving you checkbook control of your self-directed Roth IRA. Instead of routing through partner platforms, Rocket Dollar sets up an LLC owned by your IRA. You manage the LLC's checking account and can invest in virtually anything permitted by IRS rules.

This structure offers maximum flexibility: you can write a check directly to a real estate syndicator, wire funds to a private credit deal, or invest in a friend's startup. Rocket Dollar charges monthly fees starting at $15 for their Core plan. The checkbook control model is faster and more flexible than custodian-directed alternatives.

Fundrise

Fundrise accepts IRA investments through partner custodians. You can hold Fundrise eREIT and eFund shares inside a Roth IRA. Because Fundrise uses a REIT structure, there's no UBIT concern from debt-financed income. Fundrise's low minimums ($10 for standard accounts) make it accessible even for smaller Roth IRA balances.

Contribution Limits and Strategies

2026 Roth IRA Contribution Limits

The 2026 Roth IRA contribution limit is $7,000 ($8,000 if age 50 or older). Income phase-outs begin at $150,000 MAGI for single filers and $236,000 for married filing jointly. Above those thresholds, direct Roth contributions are reduced or eliminated.

$7,000 per year seems small for alternative investments with $25,000+ minimums. Here are strategies to build a larger Roth IRA balance:

Backdoor Roth Conversions

High earners above the income limits can contribute to a traditional IRA (non-deductible) and immediately convert to a Roth. There's no income limit on conversions. This allows anyone to get $7,000-$8,000 into a Roth annually regardless of income.

Mega Backdoor Roth

If your employer's 401(k) allows after-tax contributions and in-service distributions, you can funnel up to $46,000 additionally into a Roth IRA through the mega backdoor strategy. Over several years, this builds a Roth balance large enough to meet alternative investment minimums.

Roth Conversion of Traditional IRA

You can convert existing traditional IRA balances to Roth by paying taxes on the converted amount today. Converting $100,000 costs roughly $24,000-$37,000 in taxes (depending on your bracket), but all future growth becomes permanently tax-free. For investors planning to hold high-return alternatives, paying taxes now to get into a Roth structure can be the right move.

The UBIT Problem With Roth IRA Alternatives

The biggest gotcha with roth IRA alternative investments is unrelated business income tax (UBIT). When your Roth IRA holds a debt-financed investment, typically leveraged real estate, the debt-financed portion of income triggers UBIT even inside the Roth.

A real estate syndication using 65% leverage might generate $6,500 in UBTI on a $100,000 investment. After the $1,000 deduction, your Roth IRA owes trust-rate taxes on $5,500, roughly $800-$1,200. The tax comes out of your IRA balance.

How to Minimize UBIT in a Roth IRA

• Choose unleveraged real estate deals or REITs (no leverage pass-through)
• Invest in private credit (interest income isn't UBTI)
• Use farmland purchased without debt financing
• Consider a solo 401(k) instead, which is exempt from debt-financed UBIT rules

Read our full UBIT guide for detailed calculations.

Prohibited Transactions to Avoid

The IRS prohibits "self-dealing" between you and your Roth IRA. Violations disqualify the entire IRA, making all funds immediately taxable plus a 10% penalty. Key rules:

You cannot personally benefit from IRA investments. Your Roth IRA can own rental property, but you can't live in it, vacation in it, or use it as an office. Your family members (spouse, parents, children, their spouses) are similarly prohibited.

You cannot provide services to IRA investments. If your Roth IRA buys a rental property, you cannot personally manage it, perform repairs, or even mow the lawn. Hire third-party managers and contractors.

You cannot lend money to or borrow from your IRA. No using IRA funds as a personal bridge loan. No guaranteeing IRA debts with personal assets (non-recourse debt only).

You cannot buy assets from or sell assets to your IRA. You can't sell your personal rental property to your Roth IRA, even at fair market value.

Platform-based alternatives generally avoid prohibited transaction issues because the platform manages everything. The risk increases with direct investments through checkbook-control IRAs like Rocket Dollar.

Best Alternative Assets for a Roth IRA

The ideal roth IRA alternative investments maximize the tax-free growth benefit. Prioritize:

High-growth assets. Private equity and venture capital with potential for 3-5x returns generate the most tax-free value. A $20,000 VC investment that returns $100,000 saves you $19,040 in taxes (23.8% on $80,000 gain) versus holding it taxably.

Tax-inefficient assets. Private credit generating ordinary income (taxed up to 37%) benefits enormously from Roth treatment. A 10% annual yield taxed at 37% keeps only 6.3% after tax in a taxable account. Inside a Roth, you keep the full 10%.

Long-duration investments. Alternatives with 7-10 year horizons let tax-free compounding work longest. Real estate syndications, farmland, and private equity funds fit this profile perfectly.

Learn more about optimizing your self-directed IRA tax advantages.

Frequently Asked Questions

Can I invest in real estate crowdfunding through a Roth IRA?

Yes. Platforms like Fundrise accept IRA investments directly, while others work through self-directed IRA custodians like Alto IRA or Rocket Dollar. You'll need to open a self-directed Roth IRA account and direct the custodian to invest on your behalf. The process typically takes 1-2 weeks for initial setup.

What happens if I make a prohibited transaction in my Roth IRA?

The entire Roth IRA is disqualified as of January 1 of the year the prohibited transaction occurred. All assets are treated as distributed, meaning you owe income tax on the full balance plus a 10% early withdrawal penalty if you're under 59 1/2. On a $200,000 Roth IRA, that could mean $74,000+ in taxes and penalties. This is why platform-based investments are safer than direct deals.

Is Fundrise a good Roth IRA investment?

Fundrise works well in a Roth IRA because its REIT structure avoids UBIT issues, minimums are low, and returns have historically been competitive. REIT dividends that would normally be taxed as ordinary income (up to 37%) become entirely tax-free inside a Roth. The main drawback is Fundrise's limited liquidity, which matters less inside a retirement account.

Can I day-trade crypto in a Roth IRA?

Technically yes, through custodians that support crypto. All gains would be tax-free. However, most self-directed IRA custodians charge per-transaction fees that make frequent trading expensive. Also, frequent trading doesn't change the contribution limit, so you're still constrained to $7,000-$8,000 annually in new contributions.

How do I roll over my existing Roth IRA to invest in alternatives?

Open a self-directed Roth IRA with a custodian like Alto IRA or Rocket Dollar. Initiate a trustee-to-trustee transfer from your current Roth IRA provider. The transfer is not a taxable event. Funds typically arrive within 5-10 business days. Once funded, you can direct investments into alternative assets. Keep some cash reserve for fees and unexpected capital calls.

What are the best alternatives to hold in a Roth IRA versus a taxable account?

Put tax-inefficient, high-return alternatives in the Roth: private credit, non-qualified REIT dividends, and high-growth venture capital. Hold tax-efficient alternatives in taxable accounts: long-term real estate (where you benefit from depreciation deductions and capital gains rates) and qualified opportunity zone investments (which have their own tax benefits that don't stack with Roth treatment).

ModernAlts is an independent research platform. Nothing in this article constitutes investment, legal, or tax advice. Alternative investments involve risk including possible loss of principal.