How Do Self-Directed IRAs Work?

Self-directing with retirement funds has increased in popularity over the past few years. While they’ve been around since the ’70s, Self-Directed IRAs (SDIRA) are still considered unfamiliar by many.

While all IRAs are prohibited from a short list of investments deemed unfit by the IRS (, Self-Directed IRAs open a world of opportunity-from alternative assets like Real Estate, LLCs, and Precious Metals, to digital assets like Bitcoin, Ethereum, and other cryptocurrencies.

Self-Directed IRAs put you, the individual, in the driver’s seat. While SDIRA custodians cannot give you financial or investment advice, a reputable custodian should be able to provide you with educational materials or next steps on where and how to start your due diligence.

For example, your custodian isn’t going to be able to tell you which piece of rental real estate will make enough money for your retirement. However, they should be able to help you determine which documents are required (as well as how to properly title those documents), or how to put rental income back into the IRA, to help you stay on the right side of the IRS.


The Self-Directed Process

From start to finish, the Self-Directed process is relatively straight-forward:

  1. Select a suitable Custodian to establish an IRA that can handle your individual needs.
  2. Fund your account via an IRA-to-IRA Transfer, Direct or Indirect Rollover, and/or new IRA Contributions
  3. Identify the investment you wish to make, as-well-as perform due diligence prior to investing.
  4. Submit the investment’s purchase documents to the IRA Custodian to carry out the desired transaction.




For more info on how the Self-Directed investment process works, please download our Self-Directed IRA Timeline.




Advantages of a Self-Directed IRA

Utilizing a Self-Directed IRA can provide several unique perks to maximize growth of your retirement savings. Here are a few key advantages:

  • Endless investment options to choose from
  • Options for Tax-Deferred or Tax-Free* growth
  • Ability to select investments that are in line with your knowledge, experience, and comfort level
  • A single SDIRA can hold multiple assets – helping to create a diversified portfolio

 *Some taxes may apply. We recommend you consult your tax, legal, and investment advisor


Risks of Self-Directed IRAs

Even if thorough research of an asset is done beforehand, investors should be aware of a few disadvantages with self-directed IRAs, which are:

  • The Custodian of your SDIRA cannot provide investment or financial advice
  • Some investments can have higher risk as they are not part of the traditional marketplace most investors are familiar with
  • The IRS prohibits transactions with certain assets or disqualified persons
  • You may incur hefty penalties or taxes if certain IRS guidelines aren’t followed


The world of self-directed investing with an IRA can be complicated at times. Whether you’re just getting started or you’ve been investing with a self-directed account for decades, it’s helpful to know the basics. If you still have questions about how the Self-Directed IRA process works, our team of experts are here to help. Call us today at (800) 777-9878 or email us at [email protected].