Setting up a retirement fund can be overwhelming, especially if you want more control over your investments. If you’re ready to take a hands-on approach to building long-term wealth, learning how to set up a self-directed IRA is a great place to start.

These specialized accounts allow you to go beyond traditional stocks and bonds, letting you invest in alternative assets like real estate, private equity, and cryptocurrency.

If you want to build a more flexible and diversified retirement portfolio, follow these seven straightforward steps to set up your self-directed IRA and take control of your financial future.

1. Research your options

Before opening an account, take time to explore what a self-directed IRA (SDIRA) is and how it differs from a standard IRA. It’s also helpful to familiarize yourself with the two structures available: Traditional and Roth accounts.

Traditional accounts offer tax-deferred growth, with taxes applied to withdrawals during retirement. Roth accounts are funded with post-tax contributions and, therefore, offer tax-free withdrawals during retirement.

Keep these questions in mind as you research your options:

• What types of assets do I want to invest in? SDIRA accounts allow you to hold alternative assets, such as real estate, private equity, and cryptocurrency, which are not permitted in standard accounts.
• Do I want to play an active role in account management? If the answer is yes, an SDIRA can be a good fit. If you’d prefer a hands-off or managed account, a standard IRA is likely your best option.
• What knowledge or experience do I have with alternative investments? The key to successful SDIRA investing is knowledge. You’ll be better equipped to make investment decisions if you are well-versed in a specific industry, such as real estate or commodities. The same can be true if you have a reliable resource, like a financial advisor, who can offer insight.
• Do I think I’ll be in a higher or lower tax bracket in retirement? If you think you’ll be in a lower tax bracket in retirement, then a Traditional SDIRA is a great retirement vehicle, as your tax obligation will be lower in retirement. A Roth account may better suit your needs if the opposite is true, as you’ll pay taxes upfront instead of during retirement.

2. Create an Investment Plan

Following your research, the next step is to create an investment plan.

One way to do this is by creating a mock portfolio. Decide which assets you’d like to invest in, considering your personal experience and what you know about the available alternative assets. Are you interested in real estate or precious metals? Do you want to put funds into cryptocurrency or purchase private equity?

As part of your planning, evaluate your funds to determine how much you can invest. Some assets, like real estate, often require a more significant up-front investment. Understanding your purchasing power can help you create a plan.

Lastly, have a goal: How much do you need to build by the time you retire, and how does your mock portfolio support that goal? Identify gaps to ensure you see the full picture and can address them now rather than in retirement.

3. Choose a custodian

Once you’ve created a strong investment plan and decided whether a Traditional or Roth IRA fits your goals, the next step is selecting a custodian. An IRS-approved custodian must hold a self-directed IRA, but not all custodians offer the same services or support the same types of investments.

When looking for a custodian, choose one that:

• Has experience with self-directed IRAs
• Supports the specific alternative assets you plan to invest in, such as real estate, private equity, or digital currency
• Offers clear fee structures and helpful, reliable support

Your investment goals should guide your choice. For example, if you plan to invest in real estate, choose a custodian familiar with real estate transactions. If you’re more interested in private lending or precious metals, ensure they allow and manage those asset types.

It’s also important to remember that your custodian won’t offer financial advice. Their role is to handle the administrative side of your IRA and help ensure you follow IRS guidelines. Choosing the right one is critical to setting your account up for success.

4. Open Your Account

After choosing the right account type and selecting a custodian, the next step is to open your SDIRA. Most custodians offer an online application, but some may allow you to complete some or all of the application process over the phone or in person.

Though the exact process can vary by custodian, most will require you to submit the following:

• Government-issued ID, such as a driver’s license or passport.
• Social Security number (SSN)
• Employment and income details
• Beneficiary information (e.g., who takes ownership of the account should you pass away).
• Initial funding method (contribution, transfer, or rollover)

5. Fund Your Account

Once your account is open, the next step is to fund it. This gives you the capital you need to begin investing in alternative assets.

There are three primary ways you can fund your account:

• Transfer. Moves money from an existing IRA to your new SDIRA account.
• Rollover. Moves money from a qualified account, like a 401(k), to the SDIRA.
• Contribution. Allows you to fund the SDIRA via another account, such as a savings or checking account.

Transferring or rolling over funds is common if you already have retirement savings and want to take advantage of the broader investment options available in an SDIRA.. However, annual contributions are limited to $7,000 ($8,000 if you are 50 or older), which may limit your ability to invest or make contributions throughout the remaining part of the year.

6. Build Your Portfolio

Now is the time to put your research and planning to work. With your self-directed IRA fund, select and invest in your assets. Be cautious with your selections; a diverse portfolio can be better for long-term growth. A balance between steady investments paired with a few high-reward options can be beneficial. Take advantage of the different alternative assets to create a robust, stable portfolio during market volatility.

7. Maintain Your Self-Directed IRA

Once you have built your SDIRA, don’t just let it sit. You are responsible for your own retirement fund. Watch your investments carefully. As time passes, some of your investments may not be doing as well as you predicted, while others can perform beyond expectations. Cut what isn’t working and redistribute to maintain a steady flow of income.

Communicate with the custodian and ensure everything is up to date to avoid legal entanglements. As your account grows, follow good practices and avoid prohibited transactions. Over time, you should be able to accumulate a solid nest egg.

Being Vigilant with Your SDIRA

Taking charge of your retirement can be difficult, but your future can be bright if you take the proper steps. You can build a successful retirement account for your golden years with proper research, careful planning, and smart investments.

Before investing, speak with a financial advisor regarding your financial standing and determine if self-directed investing is in your best interest. Perform your due diligence and start planning for your future by contacting a trusted Horizon Trust Custodian today.

FAQs

How is an SDIRA different from a regular IRA?

The main difference is investment flexibility. A standard IRA limits you to traditional market investments. With an SDIRA, you can choose a much wider range of assets, but you also take on more responsibility for due diligence and compliance.

How do I fund my new SDIRA?

You can fund it via transfers or rollovers from existing IRAs to consolidate assets. Contributions may be tax-deductible depending on the account type.

How do I choose the best Self-Directed IRA custodian?

Selecting a custodian is one of the most important decisions in the process. You’ll want a custodian who has experience with the types of assets you plan to invest in, offers clear and competitive fees, and provides strong customer service.

Since the custodian holds your account in compliance with the law, choosing wisely will help you avoid administrative or regulatory issues down the line.