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
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.