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I currently have a roth IRA with a large brokerage firm but to increase the diversification of my portfolio, I'd like to invest in some securities that this brokerage firm will not invest in (in my case Peer to Peer lending notes, but I can imagine other examples, but as Dilip Sarwate points out there are limitations here). The answer to this question says it is possible to split a roth IRA, which I interpret to mean that I could for example have part of my roth IRA with lending club and another part in a Schwab brokerage account and another part in a traditional bank account. How do I go about doing this legally, without incurring any tax penalties?

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You can do a trustee to trustee exchange. You will need to contact both companies to coordinate the paperwork. As long as both accounts are the same type (traditional\Roth) you are fine.

You can also do a rollover where you have the check but there are some limitations and deadlines which are avoided by the trustee to trustee exchange. For example the IRS limits the number of rollovers to one a year.

You can have multiple accounts of the same type. The annual contribution limits can be split across accounts. Rollovers and transfers are not part of annual contribution limits.

  • If I don't need to transfer any money, could I just set up a second Roth IRA account with the alternative company using my 2015 contribution of $5500? or would that be illegal? Am I correct in assuming the trustee to trustee exchange is for when you are actually exchanging money between the accounts? – WetlabStudent Jan 4 '15 at 3:00
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    @MHH you are correct. You could open up a Roth IRA with a second company and make your contribution there. Note that the $5500 limit is across all of your IRAs and not per account. – Alex B Jan 4 '15 at 3:08
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Your brokerage might be cautious about allowing you to loan your IRA money in a Peer-to-Peer lending deal because it might result in a prohibited transaction (e.g. the other Peer is your son-in-law; for the purposes of IRAs, the spouse of a lineal descendant is treated the same as you, and the transaction will be treated as if you have borrowed money from your IRA). If you want to put the money into a lending club, then there might be issues of how the club is structured, e.g. who makes the decisions as to whom the money is loaned to. Such issues don't arise if you are putting the money into a money-market mutual fund, for example, but with new-fangled institutions such as lending clubs, your brokerage might just being cautious.

If you want to open an IRA account directly with a lending club, check if the club offers IRA accounts at all. For this, they will likely need to have a custodian company that will handle all the IRA paperwork. For example, the custodian of IRA accounts in Vanguard mutual funds is not the fund or even Vanguard itself but a separate company named Vanguard Fiduciary Trust Company. I am sure other large firms have similar set-ups. Whether your pet Peer-to-Peer lending club has something similar set up already is something you should look into.


This part of the answer applies to an earlier version of the question in which the OP said that he wanted to invest in precious metals.

Be careful in what you invest in when you say you want to invest in precious metals; in refusing to buy precious metals for you in your IRA, your brokerage (as your fiduciary) might be refusing to engage in a prohibited transaction on your behalf.

Investments in what are called collectibles are deemed to have been distributed to you by the IRA, and if this is an early distribution, then penalties also apply in addition to the income tax. Publication 590 says

Collectibles. These include:

  • Artworks,
  • Rugs,
  • Antiques,
  • Metals,
  • Gems,
  • Stamps,
  • Coins,
  • Alcoholic beverages, and
  • Certain other tangible personal property.

Exception. Your IRA can invest in one, one-half, one-quarter, or one-tenth ounce U.S. gold coins, or one-ounce silver coins minted by the Treasury Department. It can also invest in certain platinum coins and certain gold, silver, palladium, and platinum bullion.

So, make sure that your new IRA custodian does allow you to buy (say) titanium or Krugerrands in your IRA if that is your pleasure.

  • thanks for pointing this out, I edited the question accordingly. – WetlabStudent Jan 4 '15 at 5:11

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