Yes, you can invest your IRA in stocks. Federal tax law defines an IRA as a trust or custodial account and places very few restrictions on what it can hold, so common shares, preferred shares, and publicly traded REITs all fit inside a Traditional or Roth IRA.1Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts The tax code works by exclusion: it names a short list of things an IRA cannot hold (life insurance contracts and collectibles), and individual stocks are not on it. What matters more than permission is how the gains get taxed, how much you can put in, and a few rules that can cost you real money if you miss them.
What Equities Qualify
Common stock is the straightforward choice and gives your IRA a fractional ownership stake with voting rights in a publicly traded company. Preferred shares work too and typically pay fixed dividends with priority over common dividends. Real Estate Investment Trusts that trade on the NYSE or Nasdaq are eligible and give you exposure to property income without owning real estate directly.
American Depositary Receipts let you hold foreign companies inside the account. Watch for the depositary bank’s custody fee, usually one to three cents per share, which is deducted from your account periodically and can add up on large long-term positions.
How Stock Gains Get Taxed Inside an IRA
Dividends and capital gains accumulate inside either type of IRA without producing a 1099 for the year. No tax event happens when you sell a stock at a profit inside the account. The tax event comes later, at withdrawal, and the type of IRA controls what that looks like.
In a Traditional IRA, every dollar you withdraw in retirement is taxed as ordinary income, regardless of whether it started as a contribution, a dividend, or a stock that tripled.2Internal Revenue Service. Traditional and Roth IRAs Long-term capital gains, which get favorable rates in a regular brokerage account, lose that advantage. If you plan to hold high-growth stocks for decades, that’s a real cost to weigh against the upfront deduction.
A Roth IRA reverses the setup. Contributions go in with after-tax dollars, but qualified distributions in retirement come out completely tax-free, including all the growth.2Internal Revenue Service. Traditional and Roth IRAs For stocks with significant appreciation potential, a Roth can be the better container. There’s no deduction on the way in, and income limits may block direct contributions altogether.
2026 Contribution and Income Limits
For 2026, you can contribute up to $7,500 across all your Traditional and Roth IRAs combined. If you’re 50 or older, an additional $1,100 catch-up brings the total to $8,600.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Contributions must be in cash. You cannot move stock you already own in a taxable brokerage account into your IRA as a contribution.
Roth contributions phase out at higher incomes. For 2026, single filers get the full amount below $153,000 in modified adjusted gross income, a reduced amount between $153,000 and $168,000, and nothing above $168,000. Married couples filing jointly phase out between $242,000 and $252,000.3Internal Revenue Service. 401(k) Limit Increases to $24,500 for 2026, IRA Limit Increases to $7,500 Traditional IRAs have no income limit on contributing, though whether the contribution is deductible phases out at separate thresholds if you or your spouse is covered by a workplace retirement plan.
Going over the annual limit triggers a 6% excise tax on the excess for every year it stays in the account. The fix is to withdraw the excess plus any earnings before your tax filing deadline. Miss that window and the 6% keeps compounding until you take the money out.
Opening the Account and Buying Shares
An IRA has to be held by a qualifying trustee or custodian, meaning a bank or another entity the IRS has approved.1Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts In practice most people open an IRA at an online brokerage that offers self-directed trading. The application takes minutes and asks for your Social Security number, basic personal information, and a beneficiary.
Funding can come from an annual cash contribution or a rollover from a 401(k) or another retirement plan. A direct trustee-to-trustee transfer is cleanest because the money moves between custodians without passing through your hands. If a distribution is paid to you first, you have 60 days to redeposit it into the new IRA; miss that and it becomes a taxable distribution, plus a 10% early withdrawal penalty if you’re under 59½.4Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Once cash is in the account, buying stock works the same as any brokerage account. Enter the ticker, specify the number of shares, and place the order. Most major brokerages charge no commission for online stock trades. IRAs cannot use margin, so the platform will reject any order that exceeds your cash balance.
Order type matters. A market order fills immediately at whatever price is available, which is fine for heavily traded names during market hours. A limit order caps the price you’ll pay, giving you control at the risk of the order not filling. For thinly traded or volatile stocks, limit orders prevent the surprise of paying well above the quoted price.
The Wash Sale Rule Applies to Your IRA
Here’s a scenario that catches investors: you sell a stock at a loss in your taxable brokerage account to claim the deduction, then buy the same stock in your IRA within 30 days. The IRS treats this as a wash sale and disallows the loss. The rule applies across all your accounts, including IRAs, and extends to your spouse’s accounts.
What makes this especially costly is the follow-on treatment. Normally a disallowed wash-sale loss gets added to the cost basis of the replacement shares, so you recover it when you eventually sell. Inside an IRA, that adjusted basis is essentially lost forever, because you never realize a taxable gain or loss on sales within the account. The IRS doesn’t require brokerages to track wash sales across different accounts or institutions, so monitoring is on you. If you trade the same stocks in both taxable and retirement accounts, keep a 31-day buffer between selling at a loss in one and buying in the other.
Prohibited Transactions
The IRS separates investing your IRA in the stock market from using your IRA for personal benefit. Cross the line and the whole account can be disqualified. A prohibited transaction is any improper use of IRA assets involving you, your spouse, your parents, your children, or their spouses, all of whom count as disqualified persons.5Internal Revenue Service. Prohibited Transactions Examples include borrowing from your IRA, selling personal property to it, pledging it as collateral for a personal loan, or having it buy something you or your family use.
If a prohibited transaction happens, the IRA is treated as if it distributed all of its assets on the first day of that tax year. The full fair market value gets added to your taxable income, plus a 10% early withdrawal penalty if you’re under 59½.6Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts The disqualified person also faces an excise tax of 15% of the amount involved, rising to 100% if the transaction isn’t corrected within the taxable period.7Office of the Law Revision Counsel. 26 USC 4975 – Tax on Prohibited Transactions
For someone buying publicly traded stocks through a mainstream brokerage, prohibited transactions are not a practical worry. The exposure grows in self-directed IRAs holding private company stock, real estate, or other alternatives where personal dealings are easier to fall into.
When Your IRA Can Owe Its Own Tax
Ordinary stock dividends and capital gains inside an IRA don’t create a tax bill. Certain investments can, through something called unrelated business taxable income, which is taxed at trust rates ranging from 10% to 37%. For stock investors, the common culprit is Master Limited Partnerships. MLPs generate active business income that passes through to the IRA as UBTI.
The first $1,000 of gross UBTI per IRA each year is exempt. Above that, the IRA must file IRS Form 990-T and pay the tax from its own funds; you can’t cover it with personal money. The $1,000 threshold applies per IRA, so multiple MLP positions in the same account aggregate together. Regular publicly traded stocks, including dividend payers, don’t produce UBTI, so this only matters if you buy into partnership structures.
Getting Stock Out of the Account
You don’t have to sell your holdings to take a withdrawal. An in-kind distribution transfers actual shares from your IRA to a taxable brokerage account. The fair market value on the transfer date counts as a taxable distribution, but you keep the stock and its future appreciation. That’s useful when you’d rather not sell into a weak market to meet a withdrawal requirement.
Traditional IRA holders must start taking required minimum distributions at age 73, with the age rising to 75 in 2033. You can satisfy an RMD with an in-kind stock transfer, but verify the share value meets the required amount. Market moves during the transfer window can leave you short, which triggers a steep penalty on the shortfall. Roth IRAs have no RMDs during the original owner’s lifetime, another reason Roth accounts pair well with long-term equity holdings.
Withdrawals from a Traditional IRA before age 59½ generally trigger a 10% additional tax on top of income tax, with exceptions for disability, certain medical expenses, and first-time homebuyer costs up to $10,000.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions Planning withdrawals around these rules is one area where professional advice tends to earn its cost.