Best Investments for a Self-Directed IRA

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Best Investments for a Self-Directed IRA

So, you have found and set up the best self-directed IRA account. Now what? Self-directed IRAs are great investment tools. They give you much more freedom than other retirement plans and there are great tax benefits. But, with more freedom comes more responsibility. It is up to you to determine what you should invest in with your hard earned retirement dollars. 

No one in the history of financial services has ever told someone to put all of their eggs in one basket. Diversification is the name of the game. But what should you invest in? What are the risks and expected ROI? What are the possible consequences?

A little research goes a long way in the investment world. It’s your retirement. Why leave it to chance?

Investments for self-directed IRAs

There are a lot of investment opportunities in the world. Sometimes, in order to determine what to invest in, it might help to narrow down the possibilities by figuring out what you can’t invest in. 

  • Life insurance
  • Collectibles
  • Prohibited transactions

Life insurance.

The IRS does not currently allow for the investment in life insurance using funds from your IRA. You can, however, still purchase a plan through your employer or on your own personal funds. 


The IRS prohibits investing in artwork, antiques, wine, and other collectibles. This includes certain precious metals that don’t meet IRS purity standards.

Prohibited transactions.

According to the IRS, a prohibited transaction might include borrowing money from your IRA, selling property to it, using it as security for a loan, or using it to buy property for personal use. 

The IRS also prohibits “disqualified persons” from benefiting from the IRA. A disqualified person may be a spouse, ancestor, lineal descendant, and any spouse of a lineal descendant. 

Here is a complete list of disqualified persons to your IRA:

  • You, the IRA owner
  • Beneficiaries of your IRA
  • Your family members:
  • Spouse
  • Parents
  • Grandparents and great-grandparents
  • Children and their spouses
  • Grandchildren, great-grandchildren, and their spouses
  • Service providers of the IRA including those that give investment advice concerning the assets for which he/she receives direct or indirect compensation
  • An entity—it could be a corporation, partnership, limited liability company, trust or estate—owned 50% or more (directly or indirectly) by a disqualified person
  • An officer, director (or an individual having powers or responsibilities similar to those of officers or directors), a 10% or more shareholder, or highly compensated employee (earning 10% or more of the yearly wages of an employer) of a person described above

Now that we know what we can’t use a self-directed IRA for, let’s take a look at some possible investments. 

Best investments for a self-directed IRA

Real estate.

Real estate has been a popular investment for hundreds of years. It is one of the best self-directed IRA investments out there. There are many strategies for investing in real estate. Some people flip houses. Others buy a property and collect rent while the value of the property itself appreciates. 

One thing to consider if you are looking into investing in a rental property is where it is located. Different regions of the U.S. will have wildly varying property values. Property in or close to a major city will statistically have higher rents. Looking for properties in an area that will appreciate in value over the next few years is an excellent strategy. This is what our clients typically do and are very successful in their strategies. Keep in mind that these investments are long term investments and they hold these between 5-7 years.

Private lending.

You can lend money from your IRA, but not to yourself. You can act as your own bank to invest in a variety of projects, be it real estate or small business. 

It’s important to be very clear about setting the terms of the loan. Making sure the borrower understands the loan amount, the interest rate, and how long before the loan needs to be repaid in full is paramount. It is also very important to decide if you are providing secured or unsecured loans. Lending money through an unsecured loan can be very risky. If the borrower defaults on the loan, the lender doesn’t have much in the way of legal recourse. A secured loan, on the other hand, is protected by collateral in the form of vehicles, real estate, etc. 

Private investing.

There are many companies like SpaceX, Publix, and Cargill that are hugely successful but aren’t traded publicly. There are also startups that are in need of capital in order to get their footing. Private investing is a great way to get in on the ground floor of a new company. Everyone wishes they had bought into Facebook or Twitter before they went public; private investing is how that happens. 

A great way to get started with private investing is to consult with a professional who has experience dealing with alternative assets. There is a world of investment opportunities beyond the stock market. 

How can IRAR help?

IRAR Trust Company is a self-directed IRA custodian that has been helping clients with directed retirement for almost three decades. We are a dedicated team of experts that offer investment education and explanation of the rules and regulations governing self directed retirement accounts. We specialize in real estate assets as well as private equity investments. 

If you are ready to take the next step in planning for your future, IRAR is here to help. We look forward to hearing from you. 

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