So you’ve been considering investing in art and antiques when you suddenly have a brilliant idea. Can you purchase these alternative assets in one of your retirement accounts – either a 401-k or IRA? After all, many of us have significant amounts of money sitting in these accounts – sums ranging anywhere from just a few thousand dollars to upwards of several hundred thousand dollars. Certainly diverting a small portion of your IRA from some hideously overvalued technology stock or near zero yield sovereign bond into investment grade art and antiques would be prudent?
Unfortunately, I have some bad news for you. The U.S. government, in its infinite wisdom, has specifically declared most tangible assets to be off limits in retirement accounts. The list is maddeningly comprehensive too. Artwork, rugs, antiques, gems, stamps, coins and wine, as well as other tangibles are excluded. To add insult to injury the IRS broadly labels these assets as “collectibles” – a term which I believe is both inaccurate and denigrating.
The sole exception to these draconian restrictions is certain bullion coins and bars. In order to be IRA or 401-k approved, these bullion items must be struck in gold, silver, platinum or palladium in a minimum fineness of 0.995. This sole precious metal carve out does little for the art or antiques enthusiast, however, as most of these bullion pieces (with a few important exceptions) have no collector’s value.
The ostensible reasoning behind the ban on art and antiques in U.S. retirement accounts is that they are considered too high risk. This does the disservice of conflating worthless collectibles like Beanie Babies together with art masterpieces like Vincent van Gogh paintings. Sure, some art and antiques are high risk. But others are the bluest of blue chips.
In many ways it is no different from the stock market. There are stable, respected, competently run companies like Apple, General Electric and Procter & Gamble that trade on the NASDAQ or NYSE. There are also many shady companies with ethically challenged management that trade over-the-counter on the Pink Sheets. Our illustrious politicians don’t seem particularly concerned that you can plow your retirement savings into unlisted, over-the-counter securities – the stock market equivalent of Beanie Babies.
The cynic in me believes these restrictions on art and antiques in retirement accounts may not merely be a quirk of obscure tax law. I’ve long suspected that Wall Street lobbyists dictated 401-k and IRA legislation in a ploy to steer people into buying traditional investments. After all, Wall Street generates obscene commissions when average people are forced into today’s dysfunctional stock market casino via their retirement accounts.
Our foreign friends are mostly in the same boat as U.S. citizens when it comes to investing in art and antiques in retirement accounts. British personal retirement accounts – Self-Invested Personal Pensions (SIPPs) – do not technically forbid art and antique investments. However, there are certain tax disadvantages to these “chattels” that effectively disqualifies the asset class – unless you enjoy walking through a tax mine field.
Canadians are no better off than their British counterparts. The Canadian RRSP (Registered Retirement Savings Plan) does not make any allowance for art or antique investments. However, like its U.S. counterpart, there is an exemption for certain precious metal bars and coins.
Australians looking to stuff investment quality art into their SMSFs (Self Managed Superannuation Funds) are in luck – sort of. They are allowed to buy and hold art, jewelry, antiques, antiquities, coins, stamps, wine, classic cars and rare manuscripts, among other items. This enlightened approach to funding retirement through art investments isn’t without restrictions, however. Any art owned in an SMSF is subject to strict rules related to storage, insurance and appraisal.
I believe the unreasonable restrictions on art investments in U.S. retirement accounts will eventually be lifted. But it will not happen before the smart money has enjoyed many years – perhaps even decades – of outsized gains in this superior asset class. This situation will undoubtedly be a major frustration for average people trying to generate higher returns in their 401-k and IRA accounts. Only investors with liquid funds available outside of retirement accounts will be able to take advantage of the tremendous opportunities found in art and antiques.
