What Is a Self-Directed IRA?

A self-directed IRA is a type of individual retirement account and can be either a traditional IRA or a Roth IRA. It provides the same tax advantages for retirement savings, but it allows you to make alternative or unconventional investment choices in things such as precious metals or real estate.

Terry Turner, writer and researcher for RetireGuide
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    Terry Turner

    Terry Turner

    Senior Financial Writer and Financial Wellness Facilitator

    Terry Turner has more than 35 years of journalism experience, including covering benefits, spending and congressional action on federal programs such as Social Security and Medicare. He is a Certified Financial Wellness Facilitator through the National Wellness Institute and the Foundation for Financial Wellness and a member of the Association for Financial Counseling & Planning Education (AFCPE®).

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    Matt Mauney, Senior Editor for RetireGuide

    Matt Mauney

    Financial Editor

    Matt Mauney is an award-winning journalist, editor, writer and content strategist with more than 15 years of professional experience working for nationally recognized newspapers and digital brands. He has contributed content for ChicagoTribune.com, LATimes.com, The Hill and the American Cancer Society, and he was part of the Orlando Sentinel digital staff that was named a Pulitzer Prize finalist in 2017.

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    Ebony J. Howard, CPA

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  • Published: January 19, 2021
  • Updated: October 6, 2023
  • 4 min read time
  • This page features 8 Cited Research Articles
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APA Turner, T. (2023, October 6). What Is a Self-Directed IRA? RetireGuide.com. Retrieved July 24, 2024, from https://www.retireguide.com/retirement-planning/investing/accounts/ira/self-directed/

MLA Turner, Terry. "What Is a Self-Directed IRA?" RetireGuide.com, 6 Oct 2023, https://www.retireguide.com/retirement-planning/investing/accounts/ira/self-directed/.

Chicago Turner, Terry. "What Is a Self-Directed IRA?" RetireGuide.com. Last modified October 6, 2023. https://www.retireguide.com/retirement-planning/investing/accounts/ira/self-directed/.

How Do Self-Directed IRAs Work?

A self-directed IRA (SDIRA) offers the same tax advantages of conventional individual retirement accounts, but they allow you to invest your contributions into unconventional investments.

A SDIRA gives you more flexibility in investing your retirement savings, but the unconventional investment choices permitted in a self-directed IRA can be a riskier way to save for your retirement.

Self-directed IRAs are a variation of either a traditional IRA or a Roth IRA, and they are subject to the same contribution limits as those conventional IRAs.

They also offer the same tax advantages you would receive with a conventional Roth IRA or traditional IRA.

Did You Know?
The contribution limits for self-directed IRAs are the same as those for any other IRA. For 2024, your total annual contribution limit to all the IRAs you may have is $7,000 if you are under age 50 and up to another $1,000 catch-up contribution if you are 50 or older.
Tax Advantages: Traditional vs. Roth IRA
Traditional IRA
Contributions are generally made tax-deductible, meaning that you don’t have to pay taxes on the money until you retire and withdraw your earnings. The money you take out is then taxed as income.
Roth IRA
Contributions are taxed as income, but your earnings and withdrawals after you retire are free from income tax.
Taxes on IRA Withdrawals

If you open a self-directed IRA, expect to take on more responsibility and work then you’ll have with a conventional IRA.

You generally will have to agree to be responsible for overseeing the selection of investments as well as managing and monitoring them, according to a review of industry documents by the U.S. Government Accountability Office.

The GAO also found that you will also “shoulder the consequences of most decisions” that affect this type of retirement account.

On top of that, the Internal Revenue Service may not provide easily accessible information about your tax consequences.

Did You Know?
The U.S. Government Accountability Office warns that investing alternatives allowed under a self-directed IRA “increases the owners’ responsibilities in ways they may not understand — and mistakes can trigger taxes and penalties.”

Self-Directed IRA Custodians

Self-directed IRAs, like all IRAs, still require a custodian — a bank, credit union or other financial institution or an entity that the IRS approves to operate as a nonbank custodian.

Your custodian holds the title to the assets and investments in your self-directed IRA. The custodian oversees issuing money from your account and can oversee regulations.

But self-directed IRA custodians don’t have many requirements to make sure the unconventional assets you may invest in — or the people and companies selling them — are legitimate. You will be responsible for much of this oversight.

Alternative Investments Allowed in Self-Directed IRAs

What sets self-directed IRAs apart from conventional IRAs is the alternative investment opportunities.

Conventional IRAs allow you to invest in stocks, bonds and mutual funds. But self-directed IRAs allow for a much wider range of investment alternatives. Self-directed IRAs give you the ability to invest in many more options.

Alternative Investments Allowed Through a Self-Directed IRA
  • Precious Metals: Gold, silver, platinum and certain investment coins
  • Virtual Currency: Bitcoin and other cryptocurrencies
  • Real Estate: Real property, including undeveloped land, commercial buildings and rental housing
  • Foreign Assets: Foreign exchange currency and overseas property
  • Energy: Oil, gas, wind energy and solar power
  • Private Equity: Private company stock, interests in limited liability companies and limited partnerships
  • Promissory Notes: Includes secured, non-secured and those backed by collateral
  • Tax Liens: Investments in tax liens imposed on tax-delinquent property, either real or personal

One of the drawbacks of self-directed IRAs is that you may be more likely to become the victim of fraud.

There have been several schemes in recent years involving investment promoters encouraging investors to sell securities and invest in precious metals through self-directed IRAs, according to the Texas State Securities Board.

How to Set Up a Self-Directed IRA

While conventional IRAs can be set up through most banks, credit unions and other financial institutions, self-directed IRAs can only be set up through a licensed and regulated IRA custodian that specializes in SDIRAs.

The Internal Revenue Service maintains a list of nonbank trustees approved to serve as self-determined IRA custodians.

Regulations forbid self-directed IRA custodians from offering any financial advice. Because of this, banks, financial brokers and other financial institutions aren’t likely to offer SDIRAs.

The type of alternative investment options also varies from custodian to custodian. If you are interested in a specific type of investment option — gold, real estate or other unconventional options — you will need to find a custodian that offers that option with their self-directed IRA products.


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Last Modified: October 6, 2023

8 Cited Research Articles

  1. U.S. Internal Revenue Service. (2020, October 26). Income Ranges for Determining IRA Eligibility Change for 2021. Retrieved from https://www.irs.gov/newsroom/income-ranges-for-determining-ira-eligibility-change-for-2021
  2. U.S. Internal Revenue Service. (2020, October 13). Approved Nonbank Trustees and Custodians. Retrieved from https://www.irs.gov/retirement-plans/approved-nonbank-trustees-and-custodians
  3. Hartman, R. (2020, June 24). A Guide to Self-Directed IRAs. Retrieved from https://money.usnews.com/money/retirement/iras/articles/a-guide-to-self-directed-iras
  4. U.S. Internal Revenue Service. (2022, January 3). Nonbank Trustees Approved as of January 3, 2022. Retrieved from https://www.irs.gov/pub/irs-tege/nonbank-trustee-list.pdf
  5. U.S. Securities and Exchange Commission. (2018, August 8). Investor Alert: Self-Directed IRAs and the Risk of Fraud. Retrieved from https://www.sec.gov/investor/alerts/sdira.html
  6. U.S. Government Accountability Office. (2016, December). Retirement Security: Improved Guidance Could Help Account Owners Understand the Risks of Investing in Unconventional Assets. Retrieved from https://www.ssb.texas.gov/sites/default/files/GAO%20Self-Directed%20IRA%20Risks%2017-102.pdf
  7. Maine Department of Professional and Financial Regulation. (2011, October). Self-Directed IRAs: What Every Investor Needs to Know. Retrieved from https://www.maine.gov/pfr/securities/investor_ed/A%20Take%20Five%20Guide.pdf
  8. Texas State Securities Board. (n.d.). In a Self-Directed IRA, Make Sure You’re Not Your Own Worst Enemy. Retrieved from https://www.ssb.texas.gov/news-publications/self-directed-ira-make-sure-youre-not-your-own-worst-enemy