An IRA lets you shelter retirement savings from income tax, either when you contribute the funds (in a traditional IRA) or when you withdraw them (in a Roth IRA). You can keep the money safe in a money market fund or certificate of deposit, or take a little more risk on stocks, bonds or mutual funds. The IRS rules on IRAs also allow a limited range of less conventional investments.
Definitions
A non-marketable security is one without a market, meaning there's no public and accessible place to sell it. While you can always unload a share of stock in a public company, or redeem shares in a mutual fund, a non-marketable security won't find a buyer outside of a private transaction.
IRA Regulations
A non-marketable security might be a share in a small private business, a limited partnership that deals in real estate, or an investment in a movie production. The IRS has no rule against non-marketable securities in your IRA portfolio, but it does ban certain kinds of investments, whether they're marketable or not. These include jewelry, antiques and coins. In addition, you can't invest in a business that you or a member of your family owns.
Custodians and Non-Marketables
Holding a non-marketable security might present a problem for your IRA custodian. A broker or financial adviser might not be able to value the investment (custodial fees are usually charged as a percentage of total assets), or find a market if you wanted to unload it. There would be no standard commission paid on such a transaction, so the broker would have to negotiate some kind of agent contract in order to be compensated. For these reasons, many custodians won't accept non-marketable securities in IRAs they handle, and the only way you could contribute or trade in non-marketable securities would be to open a "self-directed" IRA account.
Fair-Market Value
Non-marketable securities also pose some reporting and accounting problems. The IRS requires that all contributions into an IRA be accounted for on Form 5498, every year, at their "fair market value" (FMV). If there's no market for a security, figuring fair market value will have to be a guess, unless the security has a very specific face value. The FMV also comes into play if you take a distribution from the account, part of the distribution was a non-marketable security or securities, and you must account for any capital gain on the transaction. The IRS may require some documentation to back up values that you assign, for the purchase as well as the sale.
