Uncertain market conditions can make even the best investors question their retirement decisions. While there are many flashy investments for retirement planning, the best types of investments are proven ones. 

While a traditional IRA provides offers a proven portfolio of investments with steady long-term growth, sometimes investors want an extra cushion against inflation or something more stable. Unfortunately, traditional and Roth IRAs provide little investment opportunity when it comes to real estate, precious metals, or other investments that beat out inflation.

One retirement plan I recommend to all of my customers and readers is a self-directed IRA. Owning a self-directed IRA allows you to invest in alternative assets, such as cryptocurrency, real estate, and gold. But, most importantly, with the right self-directed IRA custodian, you will have free reign to choose which assets you want to invest with.

To learn more about self-directed IRAs, let’s explore all of the rules and regulations surrounding them. 

What is a Self-Directed IRA?

A self-directed individual retirement account (SDIRA) allows investors to invest in alternative investments for their retirement. And, unlike traditional or Roth IRAs, SDIRAs are usually offered through custodians instead of brokerage firms. 

While a self-directed IRA comes with the same IRA contribution limits and tax-advantage basis as both the traditional IRA and Roth IRA, it has different asset rules. We’ll cover what these “alternative” assets encompass in a bit. But, first, take a look at the rules of operating a self-directed IRA. 

Self-Directed IRA Rules

Disqualified Persons

Transactions are tightly controlled with self-directed IRAs. While your IRA is intended to fund your lifestyle after retirement, it’s not intended to start benefiting you before retirement. That’s why any transaction that might be interpreted as “providing immediate financial gain” is prohibited. 

The disqualified-person rule doesn’t just apply to the IRA holder; it can also include:

  • Your spouse.
  • Your children.
  • Your parents.
  • Your employer.
  • Any financial advisor, fiduciary, administrator, or custodian providing IRA-related services.
  • Any business entities you own at least 50% of on either a direct or indirect basis.
  • Any business entity that is influenced by a disqualified person.

The list of prohibited transactions includes:

  • Transferring IRA plan income to a disqualified person
  • Transferring plan assets to a disqualified person
  • Extending IRA credit to a disqualified person
  • Providing goods or services to a disqualified person. 

Things get murky when determining who counts as a disqualified person if you run lots of transactions using your self-directed IRA. One classic example of a violation would be hiring your own son or daughters to build a deck on a rental apartment that your self-directed IRA owns. Seeking legal guidance to separate disqualified persons from your self-directed IRA is advised.

Disallowable Assets

The restrictions on self-directed IRAs also don’t stop at “who” can participate in plan-related transactions. The rules also restrict “which” assets you can invest in and, while there’s no official list of approved investments for self-directed IRAs, the rules are pretty clear regarding what’s prohibited. For example, here’s a list of disallowable assets in an SDIRA:

  • Collectibles: This includes gemstones, art, coins, and other valuables with intrinsic, historic, or novelty value. However, some United States and foreign coins with 99.9% purity are allowable if the IRA custodian has physical possession of them.
  • Life Insurance: IRAs are prohibited from investing in whole life, universal, and term life insurance policies. If these investments are attractive, consider a 401(k) plan.
  • S-Corporations Stock: S-Corporation shareholder restrictions prevent them from allowing IRAs as shareholders.

Certain actions are also prohibited when you’re handling assets that are allowed with a self-directed IRA. When operating a self-directed IRA, you are prohibited from borrowing money from the IRA, selling or leasing property to the IRA, or taking payment for managing a property held by the IRA. In addition, all income earned from an IRA must be returned to the IRA.

Personal Benefit

The personal benefit rule reiterates everything we discussed above. Essentially, an SDIRA cannot be used for personal gain that circumvents tax law. For example, no income derived from an SDIRA can be used for a personal savings or checking account. 


The tax-deferred benefit of a self-directed IRA means that you do not have to pay taxes on any interest and gains earned through your IRA until you withdraw funds. What’s more, contributions made to any IRA can entitle the account holder to tax deductions. 

Unfortunately, violating any of the rules of the SDIRA will nullify your account’s tax advantage. In many cases, this could mean that your account will lose all tax benefits and pay full taxes on any contributions and withdrawals. 

Contribution Limits

Finally, it’s important to understand how much you can contribute to an SDIRA before signing up for one. The 2022 contribution limit for self-directed IRAs for people under age 50 is $6,000. The limit bumps up to $7,000 for people over age 50. This is a per-person limit instead of a per-account limit. 

Self-Directed IRA Alternative Assets

Now, that we have a good understanding of what’s allowed and not allowed in an SDIRA, let’s explore a list of assets you can invest in:

  • Cryptocurrency.
  • Crypto staking.
  • Real estate.
  • REITs.
  • Startup companies.
  • Crowdfunded assets.
  • Undeveloped/raw land.
  • Promissory notes.
  • Tax lien certificates.
  • Gold, silver, and other precious metals.
  • Water rights.
  • Mineral rights.
  • LLC membership interest.
  • Livestock.
  • Commodities.
  • Private stock.
  • Private equity.

Self-directed IRAs open doors to assets that are prohibited by most of the other retirement investment plan options. For example, the ability to raise capital for real estate using an SDIRA allows you to invest your retirement account in single-family homes, multi-family homes, commercial properties, mobile homes, and more. 

What’s more, account holders have a unique opportunity to “invest with their conscience” by investing in socially responsible and sustainable investments that they pick by hand. 

Are There Any Cons to an SDIRA?

Like all IRAs, the self-directed IRA requires you to take required minimum distributions beginning at age 72 to avoid steep penalties. However, taking distributions with a self-directed IRA that is tied up with illiquid assets can sometimes prove to be more complex without professional assistance. 

In addition, self-directed IRAs tend to have a higher annual fee compared to other options, although this depends largely on the custodian.

Is a Self-Directed IRA Right for Me?

The big advantage of a self-directed IRA is the ability to access alternative assets with higher growth potential than standard IRA investments. For this reason, a self-directed IRA is attractive for anyone seeking to avoid the daily turmoil and volatility that comes with the stock market. 

One detail that often gets overlooked when discussing the diversification of self-directed IRAs is that account holders can also continue to invest in traditional investments that are permitted by other types of IRAs.

So even if you just want to extend your retirement portfolio to stocks and precious metals, an SDIRA helps you out. If you’re looking for more investment advice, be sure to browse my site for educational resources. For those interested in opening an SDIRA, visit Horizon Trust to speak to a custodian about opening an account. Horizon Trust offers low fees, friendly service, a state-of-the-art investment dashboard, and easy guidance to help you open an account and invest in what you want quickly.