Investment Company and Variable Contracts Products Representative (Series 6)Practice Exam

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Which of the following is NOT a suitable investment for IRA contributions?

Stocks
Bonds
Collectibles
Mutual funds

The correct answer is: Collectibles

The rationale behind identifying collectibles as NOT a suitable investment for IRA contributions lies in IRS regulations governing Individual Retirement Accounts (IRAs). According to these regulations, certain types of assets, specifically collectibles such as art, antiques, coins, and similar tangible items, are prohibited from being held in an IRA. The purpose of these rules is to maintain the tax-advantaged status of IRAs by preventing the valuation of these assets from being subjective and ensuring they meet liquidity and investment standards conducive to retirement planning. In contrast, investments like stocks, bonds, and mutual funds are acceptable within an IRA because they are liquid financial assets that can be easily monitored and valued. They also contribute to portfolio diversification and long-term growth strategies, aligning with the objectives of retirement savings. As such, while collectibles may present opportunities for appreciation, their exclusion from IRAs is a protective measure against volatility and valuation challenges that can arise with more subjective assets.