How It Differs from a Regular IRA What You Can Invest in That You Couldn’t Otherwise
A Self-Directed IRA (SDIRA) is a type of Individual Retirement Account that offers investors significantly more control over their investment choices than traditional or Roth IRAs. While the core tax benefits remain the same—tax-deferred growth or tax-free withdrawals, depending on the account type—the defining feature of a Self-Directed IRA is expanded investment flexibility.
What Makes a Self-Directed IRA Different?
At its core, the primary difference between a Self-Directed IRA and a regular IRA is what you’re allowed to invest in:
| Feature | Traditional/Roth IRA | Self-Directed IRA |
| Investment Options | Limited to stocks, bonds, mutual funds, ETFs, CDs | Includes all of the traditional options plus alternative assets |
| Custodian | Typically large brokerage firms | Must be a custodian that allows alternative assets |
| Level of Investor Control | Low – menu of options | High – you choose your own qualified investments |
| Regulatory Oversight | Same IRS rules apply | Same IRS rules, with added due diligence needed |
What Can You Invest in with a Self-Directed IRA?
With a Self-Directed IRA, you can invest in a wide variety of alternative assets not typically offered in standard IRA plans. Some of these include:
✅ Real Estate
- Rental properties
- Raw land
- Commercial buildings
- Vacation rentals
✅ Private Companies
- Startups
- Family businesses
- Private equity offerings
✅ Precious Metals
- Gold, silver, platinum, and palladium (must meet IRS purity standards and be stored in an approved depository)
✅ Cryptocurrency
- Bitcoin, Ethereum, and other digital assets (offered through certain custodians)
✅ Tax Liens & Deeds
- Investing in municipal debt for potentially high returns
✅ Crowdfunding Opportunities
- Real estate crowdfunding platforms
- Peer-to-peer lending platforms
Why Choose a Self-Directed IRA?
Self-Directed IRAs are ideal for investors who:
- Have experience in certain sectors like real estate or private equity
- Want to diversify beyond the stock market
- Are looking for potentially higher returns (along with higher risk)
- Want to invest in causes or industries they understand and believe in
Risks and Considerations
While SDIRAs offer more freedom, they also come with:
- More responsibility: You must conduct due diligence on investments.
- More complexity: IRS prohibited transaction rules must be strictly followed. For example, you cannot personally benefit from an IRA-owned property (e.g., live in it or rent it to a family member).
- Fewer custodians: Not all financial institutions offer self-directed IRA services.
- Potential for fraud: The alternative investment world isn’t as tightly regulated as publicly traded securities.
Final Thoughts
A Self-Directed IRA is a powerful retirement planning tool for those who want to take more control over their financial future. It unlocks investment opportunities that simply aren’t available through standard retirement accounts—ranging from real estate and startups to precious metals and crypto. However, with great power comes great responsibility. The key is to educate yourself, work with a knowledgeable custodian, and consult financial or legal professionals when needed.
If you’re an experienced investor looking to diversify your retirement portfolio and pursue non-traditional assets, a Self-Directed IRA might be the strategic edge you’re looking for.
