Saving for retirement is an important step in securing life-long financial security. 

IRAs are a common vehicle to reach that goal, but not all IRAs are created equally.

For the most control over your financial future, consider a self-directed IRA (SDIRA).  This type of account shares many of the advantages associated with standard IRAs but with a few key enhancements.  Here’s what you need to know about the benefits of a self-directed IRA. 

1. Invest in Alternative Assets

Self-directed IRAs offer a more robust collection of investment assets when compared to other retirement accounts, including standard IRAs and 401(k)s. 

Unlike traditional accounts that limit you to stocks and bonds, SDIRA accounts can hold an array of alternative assets, including: 

  • Real estate
  • Precious metals, such as gold, silver, and palladium. 
  • Commodities
  • Promissory and mortgage notes
  • Cryptocurrency
  • Private Equity
  • Foreign currency

2. Invest in High-Growth Assets

Real estate, promissory notes, and private equity can all yield higher earnings in a relatively short period compared to traditional securities. 

According to Forbes, residential real estate investments yield an average return of over 10%. Those gains can then be reinvested into your account tax-free, allowing you to double your compound interest over time. 

3. Invest in Real Estate Tax-Free (Roth)

Signing up for Roth SDIRA allows you to enjoy tax-preferred growth, meaning that all contributions to your account are taxed, but all earnings are not (as long as you withdraw during retirement age after 59 1/2). 

All income and gains from real estate investments, whether you rent, flip, or wholesale a property, will be accrued tax-free.


When you invest in tax liens, earnings come from the interest applied to the lien

4. Enjoy Greater Diversification

Diversification allows you to shield your portfolio from sudden shocks in one sector of the economy. However, we’re not talking about diversifying stocks using multiple exchanges or industries. SDIRAs allow you to own a wide range of real assets, from real estate to precious metals, and even private loans.  

5. Gain Control Over Investment Decisions

While custodians are responsible for administering your account, you still get the final say as the SDIRA holder. Furthermore, you can bypass administrative control from your custodian by opening an LLC. 

Checkbook control, as it’s referred to, allows you to cut checks directly from an LLC opened in the name of your SDIRA account. 

In turn, you can execute prompt investment decisions on real estate or Bitcoin transactions the second the market feels right without waiting hours or days for your custodian to approve the transaction. 

6. Hedge Against Inflation

You never want to put all your investment eggs in one basket, as the popular adage suggests.  And though you can diversify in a standard IRA, the opportunities are still primarily market-dependent.

By adding alternative assets that are less market-dependent, you can build a retirement strategy that is better protected from market shifts. And as suggested above, it also opens up the high-growth potential.  

7. Access Dormant Funds for High-Capital Investments

On average, Americans hold slightly over $100,000 in their 401(k) retirement account. But most people barely even touch these funds.

Instead, when you roll over your 401(k) to an IRA to invest in real estate, you can actually fund your purchase in cash without resorting to a high-interest loan. 

This is a win-win for investors who want to unleash their retirement savings before retirement age and who don’t have enough savings to invest in real estate. 

8. Get Estate Planning Protections

Though SDIRAs are designed to provide income during retirement, they can also be used to give an inheritance to loved ones. When you open an SDIRA, you can choose one or more beneficiaries to inherit your SDIRA. 

Further, an inherited Roth IRA can help reduce the tax implication of an inheritance. And, because you can hold a variety of assets in your SDIRA, you have better control over what and how you manage, grow, and transfer your estate.

9. Shield Assets with Limited Liability Protection

Thanks to the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA), IRAs are largely protected from bankruptcy. Note: Traditional and Roth IRAs, including SDIRAs, are liable to bankruptcy if the aggregate amount of all your IRAs exceeds $1,512,350

Furthermore, you can protect SDIRA assets by leveraging a checkbook LLC. While limited, the LLC does provide some personal protection over assets held in the SDIRA.  


What is an SDIRA and how does it work?

An SDIRA, or self-directed IRA, is a type of retirement account that grants the account holder power to determine when and how funds are invested. It shares many of the primary characteristics and tax benefits of a standard IRA but with the added option to invest in alternative assets, such as real estate, private equity, cryptocurrency, and promissory notes. 

When you open an SDIRA, you can choose to open a traditional or Roth IRA. Traditional SDIRAs are funded with pre-tax dollars and qualified distributions are taxed. Roth SDIRAs are funded with after-tax dollars, and qualified distributions are tax-free.  

Are there any restrictions on SDIRA investments?

Yes, there are restrictions placed on SDIRA investments. Though SDIRAs include an array of alternative assets, several types of assets cannot be held in an SDIRA, including life insurance and collectibles, such as rugs, stamps, alcoholic beverages, gems, and metals, except specific precious metals (gold, silver, platinum, and palladium of specific quality). 

In addition, SDIRA holders cannot engage in a prohibited transaction, such as one that benefits them or a disqualified person, which can include a spouse, decedent, ascendent, or account fiduciary. For instance, you could not purchase real estate with your IRA funds and then use it as a residence. Similarly, you couldn’t invest in a decedent’s business with your IRA funds. 

What are the penalties for non-compliance with SDIRA regulations?

If your SDIRA is non-compliant due to excess contributions, the excess funds will be subject to a 6% penalty until they are removed from the account.  

If you participate in a prohibited transaction, you can face a significant tax penalty. IRS rules dictate that the account can lose its IRA status and assets held will be considered distributed assets. If the fair market value of those assets exceeds the IRA basis, then it will be considered an excess gain and thus part of their income. 

Can I take a loan from my SDIRA?

No, you cannot take a loan from an SDIRA. A loan from an SDIRA is considered a prohibited transaction and would result in a penalty.