A self-directed IRA is a traditional or Roth IRA that lets you invest in alternative assets like real estate, private companies, precious metals, and crypto. It has the same tax benefits and contribution limits as any IRA. A specialized custodian holds the account, and you make every investment decision. Most IRAs at big brokerages limit you to stocks, bonds, funds, and CDs. A self-directed IRA opens up almost anything the IRS allows, in exchange for stricter rules, more paperwork, and higher fees.
Sounds pretty interesting, right? Keep reading to discover if a Self Directed IRA is right for you and your retirement savings.
Self Directed IRA Rules: Who is Eligible, How Much Can You Invest and More..
The guidelines for opening and investing with a Self Directed IRA are, in some ways, similar to those for a traditional IRA. The contribution limits are the same as with any IRA. For 2026, the IRA contribution limit is $7,500, or $8,600 if you’re 50 or older. Self Directed IRAs also come with significant extra rules. Prohibited Transactions: This can get a bit complicated. The short version is that numerous rules keep the IRA owner from using the account to enrich themselves or their family members. (The IRS calls these family members “disqualified persons,” a group that includes spouses, children, and parents.) The only way to profit from the Self Directed IRA is to take a taxable withdrawal from the account. Examples of prohibited transactions include:
- Buying or selling property from a family member or other disqualified person
- Making IRA assets available for use by yourself or a disqualified person
- Compensating yourself or a disqualified person
Neither you nor disqualified persons can even perform or be compensated for work to improve a property, for example, in a Self Directed IRA. The full IRS description of prohibited transactions can be found here. Reporting Requirements: The IRS requires that Self Directed IRA holders report on the value of your assets annually or when taking a distribution, making a conversion or demonstrating that an asset no longer has value.
How Do You Open a Self Directed IRA?
Opening a Self Directed IRA is pretty straightforward. 1) Find a a firm you want to work with. You basically have two options for a Self Directed IRA firm. You can go through a brokerage (though most name brand brokerage firms do not offer this service) or with a custodian. Custodians are usually found at companies that specialize in Self Directed IRAs. This is good because following Self Directed IRAs can be complex. 2) Decide if you want your account to be checkbook controlled or custodian controlled. Custodian controlled means that the custodian will be involved and you will endure additional paperwork for all transactions. Checkbook controlled means that you have more control, but it requires that you open a Limited Liability Corporation (LLC). Most firms will help you with either option. 3) Open an account and start contributing money and making investments.
7 Companies Offering a Self Directed IRA
Finding the right firm takes some research. Not every custodian handles every kind of investment, so compare what each one supports and what it charges. Some of the firms below are custodians, and others are platforms that work with a partner custodian. These seven are a place to start:
- Equity Trust
- Columbia Private Trust, formerly Pacific Premier Trust and PENSCO
- IRA Financial
- uDirect IRA Services
- The Entrust Group
- Alto
- Rocket Dollar
Pros and Cons of Self Directed IRAs
Pro: All the Tax Advantages of an IRA or Roth IRA
Like a traditional IRA, a self directed IRA allows you to invest with tax deferred money (you don’t pay taxes now on the money you invest in the account). And, a self directed Roth IRA allows your money to grow tax free. (You pay taxes on the money you invest, but it grows tax free and all future withdrawals are tax exempt.)
Pro AND Con: Significant Risk and Potentially Significant Reward
You need to know what you’re doing with alternative investments. Investing in unproven asset classes carries significant risk. Depending on your expertise and the investments you choose, a nontraditional investment in a Self Directed IRA can also pay off. You can get in on the ground floor of a privately held company, invest in real estate, and more. Just remember that the chance of a high reward comes with a high risk of loss.
Con: Can Be Arduous to Get Started and Manage the Account
A Self Directed IRA requires that you have an account custodian and, in most cases, you must go through that custodian every time you want to make a transaction. Furthermore, opening a Self Directed IRA requires a lot of paperwork. And, each transaction you make requires a lot of paperwork. NOTE: It is possible to create a limited liability company (LLC) for your self directed account which can cut down on the paperwork.
Con: Regulations Are Complicated
There are significant rules and regulations for holding a Self Directed IRA. And, if you violate those strict rules (even inadvertently), you are subject to taxes and penalties.
Con: Fees
The custodian for your Self Directed IRA will charge you fees to hold your investments.
Con: Required Expertise
It is up to you to understand and make all investment decisions for your Self Directed IRA. The custodian is not allowed to provide any advice.
Con: Lack of Liquidity in Cash Intensive Investments
Many investments made with a Self Directed IRA, like real estate, require a lot of capital and aren’t very liquid (not easy to buy and sell). That’s okay if you have plenty of money and a long time horizon, but less than ideal if you don’t. The lack of liquidity can also cause problems once you reach age 73 and must take required minimum distributions.
Pro: Almost Full Control Over Your Investments
You get to decide what to invest in and the sky is practically the limit (except for collectibles and life insurance). Wild, Wacky and Perhaps Wonderful Self Directed IRA Investments: Want to invest your tax advantaged funds in an ostrich farm? No problem. Want to buy an apartment building? You got it. Want to invest in a franchise? You can do it! Here are a few examples of investments you can make with a Self Directed IRA:
- Real Estate
- Gold and silver
- Commodities
- Private companies
- Mortgage notes
- Water rights
- Hedge funds
- Oil, gas, lumber
- Race horses
- Livestock
- Cryptocurrency
- Promissory notes
- Franchise opportunities or other businesses (Though, this can be very tricky as there are additional regulations. You may not profit in the short term as opposed to when you retire.)
- Movie productions
- And more…
Special Notes on Real Estate: Real estate is the most common type of investment made with a Self Directed IRA. Real estate in many different forms is eligible:
- Raw land
- Improved or unimproved property
- Full or fractional ownership
- Rental property, residential or commercial
- A buy and flip property
Real estate in a Self Directed IRA comes with strict rules, including:
- No Self Dealing: You can not buy or sell property to or from a related party.
- No DIY Improvements: You can not do any work on the property yourself, you must hire an unrelated third party for all repairs and maintenance on a property.
- No personal use. You may not live in the property.
- No mixing funds. All of the investment property’s expenses, taxes and insurance must be paid from the Self Directed IRA.
Is a Self-Directed IRA Right for You?
For most people, a regular IRA works fine. A Self Directed IRA could be worth exploring if you have specialized knowledge in an eligible investment and enough capital to put behind it. It also takes patience for paperwork and a long time horizon. If you go that route, learn the rules before you buy anything.
Model a Self Directed IRA in the Boldin Planner
You can model a Self Directed IRA in the Boldin Planner. See how your long-term net worth changes with a high-risk, high-reward account. Look at the upside and downside of the investment, and check the tax consequences for the years you’ll make withdrawals from the account.
Conclusion: Is a Self-Directed IRA Right for You?
A self-directed IRA offers almost unlimited investment possibilities, from real estate to private companies. That flexibility can create real opportunities, but it also brings complexity, strict IRS rules, and higher risk. The Boldin Savings Playbook suggests using tax-advantaged accounts for bets like these only after you’ve covered essentials like the employer match and emergency savings. Use the Boldin Planner to model a self-directed IRA’s upside and downside. You’ll see how fees, liquidity, and taxes interact with your long-term goals before you make such a complex commitment.
FAQs on Self-Directed IRAs
What is a self-directed IRA and how does it work?
A self-directed IRA is an account that lets you invest beyond stocks and bonds, in assets like real estate, private equity, or even crypto. A custodian holds the account, but you make all the investment choices. The Boldin Planner can model how these assets affect your long-term net worth.
Who is eligible to open a self-directed IRA?
Anyone eligible for a traditional or Roth IRA can open a self-directed IRA. Contribution limits are the same. The main difference is that you must work with a specialized custodian or set up an LLC to manage transactions.
What are the risks of investing with a self-directed IRA?
Risks include liquidity problems, high fees, prohibited transactions, and IRS penalties if rules are broken. Unlike a traditional IRA, you need deep knowledge of alternative assets. The Savings Playbook suggests most savers should focus on simpler accounts unless they have expertise.
Can I buy real estate in a self-directed IRA?
Yes, real estate is one of the most common uses. Strict IRS rules apply: no personal use, no self-dealing, and all expenses must flow through the IRA. The Boldin Planner can model rental income or a flip under different scenarios.
Are self-directed IRAs worth it for most people?
For most savers, a traditional IRA or Roth IRA provides enough tax benefits and easier management. A self-directed IRA may make sense if you have specialized knowledge, high risk tolerance, and patience for paperwork. The Savings Playbook recommends testing the trade-offs first.
