What Is a Self-Directed IRA?

Do more than check a box. Directly pick, buy, and sell the assets held in your IRA.

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SDIRAs have the same tax benefits as IRAs offered by banks or brokerage firms with the added benefits of being able to invest in more asset types and directly pick, buy, and sell the assets held in your account.

These alternative investments, including real estate, notes, and private equity, are the major benefit of opening a self-directed IRA. By investing in these assets, you can further diversify your portfolio, capitalize on any industry knowledge (such as real estate), and protect your savings from a volatile stock market or unpredictable changes in the economy.

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How Self-Directed IRAs Work

With any self-directed IRA, the IRA requires you to have a custodian for protection and oversight. Custodians like IRAR are regulated by state and federal law and are regularly audited.

After you choose a custodian, you’ll want to determine which IRA account type is best for your goals and open an account. You can fund your self-directed IRA with an existing IRA or old 401(k), or by making scheduled contributions. If you’re funding it with an existing account, there are two ways to do this: a rollover or a transfer. Be sure to check IRA compatibility. Given the different tax benefits of different IRA accounts, you want to know the type of account you can move funds to.

Once your account is funded, simply tell your IRA custodian what purchase you want to make.

Self-Directed IRA Investment Strategies

Your retirement goals and financial situation will influence your SDIRA strategy. Different account types offer different tax benefits. For example, a Roth IRA may fit into your retirement strategy if you believe you’ll be in a higher tax bracket when you’re retired, whereas a Traditional IRA may make more sense if you believe you’ll be in a lower tax bracket.

While IRAR can do your recordkeeping, you can gain full bookkeeping control of your account by establishing an LLC with IRA funds. Often called checkbook control, this type of SDIRA allows your LLC to make asset purchases. Other strategies include taking out a non-recourse loan with your IRA, direct purchase of a property, or partnering with others to purchase real estate.

See IRA Account Types

Self-Directed IRA Rules

Because you are responsible for making all of the decisions for your self-directed IRA, you are also responsible for following the rules of SDIRAs. Following the rules ensures you do not face unnecessary tax consequences. There are three rules:

  1. You cannot engage in a transaction with a disqualified person. 
  2. You cannot use the IRA to take personal benefit. 
  3. You cannot invest in disallowed investments.

Visit our SDIRA Rules page for more information on prohibited transactions, who counts as a disqualified person, disallowed investments, and more.

See Self-Directed IRA Rules

Choosing the Right Self-Directed IRA Custodian

Unlike IRA providers, administrators, or promoters, SDIRA custodians must meet certain legal and IRS regulations before approval. But although all custodians are regulated similarly by federal and state law, not all provide the same services. With IRAR, you get personalized service, decades of experience, and hands-on assistance.

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