Getting Started
What Is a Self Directed IRA
A self directed IRA is an individual retirement account that lets you invest in real estate, precious metals, cryptocurrency, private loans, and other alternative assets beyond stocks and funds. Here is everything you need to know.
A self directed IRA is a type of individual retirement account that gives you control over your own investment decisions. Unlike a conventional IRA held at a brokerage, which limits you to stocks, mutual funds, bonds, and ETFs, a self directed IRA allows you to invest in virtually any asset the IRS permits. That includes real estate, physical gold and silver, cryptocurrency, private loans, tax liens, private equity, and more.
The term self directed refers to how the account is administered, not to a separate IRA category under IRS rules. A self directed IRA is still a Traditional IRA, Roth IRA, SEP IRA, or SIMPLE IRA at its core. What makes it self directed is that the custodian allows a far broader range of investments than a conventional financial institution will. You direct the investments. The custodian holds the assets and handles IRS reporting. For the foundational rules on getting started, see our getting started guide. For contribution limits, see our IRA contribution limits guide. Explore the full library at IRA Guidelines and model your retirement projections with our IRA calculator.
Key Takeaways
- A self directed IRA is the same legal structure as a Traditional, Roth, SEP, or SIMPLE IRA — the difference is that the custodian permits alternative investments
- Self directed IRAs can hold real estate, physical gold and silver, cryptocurrency, private loans, tax liens, private equity, and more
- You, the account owner, direct every investment decision — the custodian holds assets and reports to the IRS but does not evaluate or approve your investments
- The same contribution limits apply to self directed IRAs as to conventional IRAs: $7,000 per year in 2026, or $8,000 if age 50 and older
- Self directed IRA prohibited transaction rules under IRC 4975 prevent self-dealing and transactions with disqualified persons — violations can destroy the entire account
- Roth self directed IRAs grow tax-free and have no required minimum distributions during the owner’s lifetime, making them particularly powerful for alternative assets expected to appreciate significantly
Self Directed IRA Definition
A self directed IRA is an individual retirement account administered by a custodian that permits alternative investments beyond publicly traded securities. The IRS does not use the term self directed IRA in its rules. From a legal standpoint, every IRA is self directed in the sense that the account owner makes decisions about contributions and withdrawals. In practice, the financial industry uses self directed IRA to describe accounts specifically designed to hold alternative assets.
What separates a self directed IRA from a conventional IRA is not the law but the custodian. Most large financial institutions — Fidelity, Schwab, Vanguard, E*TRADE — restrict IRA assets to publicly traded securities because that is what they sell. A self directed IRA custodian is a trust company or qualified institution that specializes in holding alternative assets on behalf of IRAs and reporting them to the IRS. They do not offer investment advice, perform due diligence on your deals, or tell you whether an investment is a good idea. That responsibility is entirely yours.
How Does a Self Directed IRA Work
Step 1: Open the Account
You open a self directed IRA with a qualified SDIRA custodian. The account opening process is similar to any other IRA — application, identity verification, and initial funding. You can fund the account with a new contribution, a direct transfer from an existing IRA, or a rollover from a 401k or other qualified plan. See our guide on how to open a self directed IRA account for the complete process.
Step 2: Fund the Account
You fund the self directed IRA through annual contributions up to the IRS limit, a direct transfer from another IRA with no tax consequences, or a rollover from a 401k or employer plan. There is no cap on rollover amounts. You can move an entire prior 401k balance into a self directed IRA without triggering contribution limits. The $7,000 annual limit only applies to new contributions.
Step 3: Direct Your Investment
When you identify an investment, you submit a direction of investment form to your custodian instructing them to fund the deal on behalf of the IRA. The investment is made in the name of the IRA, not in your personal name. All funds leave from the IRA account. All income, rent, interest, and appreciation flows back into the IRA account. You personally neither pay nor receive anything.
Step 4: The IRA Holds the Asset
The custodian holds the asset — whether a deed, a promissory note, gold in a depository, or cryptocurrency in a qualified wallet — as a custodial asset of the IRA. All expenses related to the asset must be paid from IRA funds. All income generated by the asset flows back to the IRA. You cannot mix IRA funds with personal funds or personally benefit from any IRA-held asset during the accumulation phase.
What Can a Self Directed IRA Invest In
A self directed IRA can invest in almost any asset the IRS permits inside a retirement account. The most commonly held alternative assets include:
- Real estate — rental properties, commercial property, raw land, farmland, tax liens, tax deeds, mobile home parks, condos, and real estate syndications
- Precious metals — physical gold, silver, platinum, and palladium meeting IRS purity standards, held at an IRS-approved depository
- Cryptocurrency — Bitcoin, Ethereum, and other IRS-permitted digital assets held through compliant custodians
- Private lending — first and second position mortgage notes, unsecured promissory notes, and business loans
- Private equity — startup equity, private company shares, LLCs, and limited partnerships
- Tax liens and tax deeds — government-issued certificates and deeds acquired at tax sales
The IRS prohibits only three asset categories inside any IRA: life insurance contracts, collectibles such as art and antiques, and S-corporation shares. Everything else is permissible as long as you can find a custodian that supports the asset class and you follow the prohibited transaction rules. For the full breakdown of investment options, see our guide on best self directed IRA companies for real estate investing and our best gold IRA companies for 2026.
Self Directed IRA Rules
Contribution Limits
Self directed IRAs follow the same contribution rules as conventional IRAs. In 2026 the annual contribution limit is $7,000, or $8,000 if you are age 50 or older. These limits apply to the combined total of all your Traditional and Roth IRA contributions. Rollover contributions from qualified plans such as a 401k have no cap and are not subject to the annual contribution limit.
Prohibited Transactions
The most critical self directed IRA rule is the prohibited transaction rule under IRC 4975. A prohibited transaction is any deal between your IRA and a disqualified person. Disqualified persons include you as the account owner, your spouse, your parents, your grandparents, your children, your grandchildren, and any entity you control at 50 percent or more. Your IRA cannot buy property from you, lend money to you, rent a property to your child, or do business with any entity you control. A prohibited transaction causes the entire IRA to be treated as distributed on January 1 of the year it occurred, triggering income tax on the full account balance plus excise taxes. See our complete guide on self directed IRA prohibited transactions.
Prohibited Transaction Example
Scenario A — Prohibited: Your self directed IRA owns a rental property. Your adult child moves in and pays rent to the IRA. This is a prohibited transaction because your child is a disqualified person. The IRA is deemed fully distributed. You owe income tax on the entire account balance for the year.
Scenario B — Permitted: Your self directed IRA owns the same rental property. An unrelated third-party tenant pays market rent directly to your custodian. All expenses — repairs, insurance, property tax — are paid from IRA funds. This is fully compliant. Income accumulates tax-deferred inside the IRA.
The distinction is who benefits. As long as no disqualified person personally benefits from any IRA-owned asset, the investment is permitted.
Required Minimum Distributions
Traditional self directed IRAs require RMDs beginning at age 73. Roth self directed IRAs have no RMD requirement during the owner’s lifetime. This makes a Roth SDIRA particularly powerful for long-term alternative investments such as real estate or private equity that are expected to appreciate significantly over decades. Use our IRA calculator to model the difference between Traditional and Roth SDIRA structures for your specific situation.
Self Directed IRA Tax Benefits
A self directed IRA retains the full tax advantages of any IRA. In a Traditional self directed IRA, contributions may be tax-deductible, all income and appreciation inside the account accumulates tax-deferred, and you pay ordinary income tax only when you withdraw funds in retirement. In a Roth self directed IRA, contributions are made with after-tax dollars, all growth is completely tax-free, and qualified withdrawals in retirement are tax-free.
The tax benefit compounds significantly with alternative investments. A rental property inside a Roth SDIRA generates rental income that accumulates tax-free. When the property sells at a gain, the entire gain is tax-free. A gold position held inside a Roth SDIRA appreciates completely outside the taxable estate for the duration of the holding period. For a complete breakdown of how self directed IRA tax rules work, including when your IRA may owe UBIT or UDFI taxes, see our guide on SDIRA tax rules.
Self Directed IRA vs Regular IRA
| Feature | Self Directed IRA | Conventional IRA |
|---|---|---|
| Investment options | Virtually unlimited alternative assets | Stocks, funds, bonds, ETFs only |
| Custodian type | Specialized SDIRA custodian | Brokerage or bank |
| Contribution limits (2026) | $7,000 / $8,000 age 50+ | $7,000 / $8,000 age 50+ |
| Tax treatment | Same as any IRA type chosen | Same as any IRA type chosen |
| Investor responsibility | Full due diligence on all investments | Custodian manages most decisions |
| Fees | Explicit flat or per-asset fees | Embedded expense ratios |
| Real estate allowed | Yes | No |
| Precious metals allowed | Yes | No |
| Crypto allowed | Yes | No |
How to Choose a Self Directed IRA Custodian
Choosing the right SDIRA custodian is the most important practical decision when opening a self directed IRA. Not all custodians support all asset classes. A custodian that handles real estate well may not support cryptocurrency. A custodian with low flat fees may be slow to process transactions. Key factors to evaluate include permitted asset types, fee structure, processing speed, experience in your target asset class, and the quality of their online account management tools.
For a complete comparison framework, see our guide on how to compare self directed IRA custodians. For questions to ask before opening an account, see our guide on questions to ask before opening a self directed IRA. For a breakdown of custodian fees, see our guide on self directed IRA custodian fees explained.
Frequently Asked Questions
What is a self directed IRA?
A self directed IRA is an individual retirement account held with a specialized custodian that permits investments in alternative assets beyond stocks and funds. Self directed IRAs can hold real estate, physical precious metals, cryptocurrency, private loans, private equity, tax liens, and other alternative assets. The account structure is identical to a conventional IRA — Traditional, Roth, SEP, or SIMPLE — but the custodian allows a far broader investment universe. The account owner directs all investment decisions and bears full responsibility for due diligence and compliance.
What are the rules for a self directed IRA?
A self directed IRA follows the same IRS rules as any IRA: annual contribution limits of $7,000 per year in 2026 ($8,000 if age 50 or older), required minimum distributions beginning at age 73 for Traditional accounts, and the prohibition on investing in life insurance, collectibles, and S-corporation shares. The most critical rule unique to self directed IRAs is the prohibited transaction rule under IRC 4975, which prohibits any transaction between the IRA and a disqualified person. Violations can cause the entire IRA to be deemed distributed and taxed in full.
What can a self directed IRA invest in?
A self directed IRA can invest in almost any asset class except life insurance contracts, collectibles, and S-corporation shares. Common self directed IRA investments include real estate of all types, physical gold and silver, cryptocurrency, private mortgage notes, private company equity, tax liens, tax deeds, farmland, and real estate syndications. The specific assets available depend on which custodian you choose — not all custodians support all asset classes.
Is a self directed IRA a good idea?
A self directed IRA is a powerful tool for experienced investors who want to deploy retirement capital in alternative assets that are unavailable in conventional IRAs. It is best suited for investors who have experience evaluating non-traditional investments, understand the prohibited transaction rules, and are prepared to manage the due diligence and compliance responsibilities that come with alternative asset investing. For passive investors comfortable with stocks and funds, a conventional IRA is simpler and lower-cost. The right answer depends on your investment experience, risk tolerance, and the specific assets you want to hold inside a tax-advantaged retirement account.