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Traditional asset

Cash & money market

Uninvested cash and money-market positions awaiting investment or distribution.

What it is

Cash is the account’s ready balance — contributions, sale proceeds, dividends, and interest sit here between investments, and money-market positions can earn a modest yield on that balance.

Holding it in a self-directed IRA

Cash is held by the custodian in the IRA’s name and is the settlement source for every purchase and the destination for every distribution and income payment.

Requirements

  • Cash is held by the custodian in the IRA’s name.
  • It funds purchases and receives income, proceeds, and distributions.
  • A money-market position or sweep may be used to earn yield on idle cash.

Limitations and prohibitions

  • Uninvested cash may, under certain program conditions, be eligible for pass-through FDIC insurance at participating banks — that protects only against a bank’s failure, only when the program’s conditions are met, and is not protection against investment loss.
  • Money-market funds are not FDIC-insured and can, in rare cases, lose value.
  • Cash held too long can lag inflation, quietly eroding purchasing power.

Valuation and liquidity

Cash and money-market positions are fully liquid; money funds price at a stable $1.00 NAV and can be redeemed promptly.

Tax considerations

Cash preserves flexibility — useful for meeting capital calls, real-estate expenses, or required distributions — but its real return may be negative after inflation, so it is usually a staging area rather than a destination.

A worked example

Your IRA sells a rental property for $250,000. The proceeds land in the account’s cash — earning money-market yield and ready to fund the next investment or a required distribution — until you redeploy them.

IRS forms & records

  • Form 5498 — fair-market value includes the cash balance.
  • Form 1099-R — distributions taken from the account.

Common mistakes that can cost you

  • Assuming cash is FDIC-insured like a bank account — pass-through coverage is conditional and investments aren’t insured.
  • Letting a large cash balance sit idle and lose ground to inflation.
  • Forgetting to reserve cash for property expenses or capital calls on other holdings.

Before you invest

  • You understand the conditions for any FDIC pass-through coverage.
  • A reserve is kept for expenses, calls, and RMDs.
  • Idle cash has a redeployment plan.

Authorities

  • IRC § 408 — individual retirement accounts.
  • 12 CFR Part 330 — FDIC pass-through deposit insurance conditions.

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Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.