Are you looking to open a self-directed IRA? Though the process is pretty simple, you can do a few things to ensure due diligence and make sure that you’re making the right decisions for your future.

Keep reading to learn more about how to open a self-directed IRA in 4 simple steps.

What is a Self Directed IRA?

A Self-Directed Individual Retirement Account (SDIRA) is a retirement account that offers investors greater flexibility and the potential for higher returns than traditional retirement accounts. In addition to traditional stocks and bonds, SDIRA account holders can invest in cryptocurrency, precious metals, real estate, and other alternative assets.

SDIRAs give account holders more autonomy when selecting and managing investments, allowing for a more hands-on approach. However, account holders must know IRS guidelines and regulations to maintain their tax-advantaged status. We recommend consulting Horizon Trust or a trustworthy financial advisor to explore all of your options.

What are the Pros and Cons of SDIRAs?

Here are three pros and cons of SDIRAs:


Diversify Investments. SDIRAs allow you to diversify your investments across a wide range of retirement options. You can invest in traditional stocks, bonds, precious metals, tax liens, cryptocurrency, real estate, promissory notes, and similar assets. While the risk is higher, the potential for greater returns exists.

Greater Control. Unlike traditional 401(k)s and IRAs managed by financial institutions and fund managers, SDIRA account holders can choose investments based on individual preferences and risk tolerance.

Tax Advantages. Opening an SDIRA allows you to invest and enjoy tax-free advantages. For example, Roth IRA proceeds to grow tax-free until withdrawn at retirement, which is advantageous if you anticipate being in a lower tax bracket.


Complex. SDIRAs offer greater investment autonomy, but with additional flexibility comes increased adherence to IRS rules and regulations. Penalties can be assessed for engaging in certain behaviors, such as participating in prohibited transactions or making early withdrawals that jeopardize your tax advantages.

Higher Fees. SDIRAs incur higher fees compared to traditional retirement accounts. These fees include account management with various transactions, annual account maintenance, and custodial fees. Be sure to review your SDIRA’s cost structure before investing carefully.

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

What prohibited transactions exist with SDIRAs?

Several types of prohibited transactions exist within SDIRAs. These include self-dealing, prohibited transactions, and borrowing funds against the SDIRA.

Self-dealing involves any prohibited transaction where retirement funds are used for one’s benefit or disqualified persons. For example, you cannot withdraw funds and use them to pay for your parents’ or children’s businesses or expenses.

As for prohibited investment transactions, SDIRA account holders cannot invest in anything that implies a direct or indirect benefit. This disqualifies certain assets from inclusion, such as life insurance contracts or private companies owned by disqualified individuals like family members.

Borrowing funds against your SDIRA is another prohibited action. Under no circumstances can SDIRA assets be used to guarantee a loan.

Failure to abide by IRS regulations within your SDIRA may lead to tax penalties or treat borrowed amounts as distributions, subjecting you to ordinary income tax and early withdrawal penalties.

Learn More: How to Avoid Prohibited SDIRA Transactions.  

What Is a Self-Directed IRA Custodian?

An SDIRA custodian holds and manages all assets within it, which may include alternative assets outside of stocks, bonds, and mutual funds, such as real estate, precious metals, and cryptocurrency. They safeguard physical assets, process all financial transactions, and keep detailed records of all account transactions and fund movements, including contributions and withdrawals.

SDIRA custodians are also responsible for reporting account activities to the IRS and ensuring compliance with all rules and regulations.

Lastly, another major role SDIRA custodians play is with education and information. They guide account holders on IRS rules, types of investments, and how to avoid taxes by keeping them informed about self-dealing, prohibited transaction rules, and tons of other fine print.

When choosing an SDIRA custodian/trust company, look for a solid track record. Horizon Trust can help you navigate the complex world of SDIRAs and what it takes to manage them successfully.

Learn More: 7 Tips for Finding the Right Self-Directed IRA Custodian.

How to Open a Self-Directed IRA: Step-by-Step

1. Research Custodians

The IRS dictates that self-directed IRAs must be managed by a licensed custodian.

Choosing the right one is imperative to your short and long-term goals. While you can opt for your local custodian if you live in a city like Salt Lake City, Lincoln, or Austin, there are several custodians that offer nationwide support to clients.

Here are some factors to consider when selecting a custodian:

  • Alternative Asset Specialization:

As specified above, one thing to consider is the type of asset in which you would like to invest. Not all self-directed IRA custodians offer the same assets. Your first goal is to find a custodian, like Horizon Trust, specializing in alternative investments.

  • Fee Structures:

Regardless of who you choose for your SDIRA custodian, you must pay at least some fee. There are various fee types, and many custodians will charge more than one. However, typically, SDIRA custodians will charge one of the following:

  • Total Asset Value, or a fee that is based on the total value of the assets in your portfolio
  • Per Asset Basis, or a fee that’s based on the total number of assets in your portfolio
  • Flat Fee, which is an annual fee that is charged regardless of the asset type

When you open a self-directed IRA, you may also find that custodians charge additional activity-based fees. This includes transaction fees, service fees, setup fees, account research fees, and account closure fees. [Learn more about SDIRA Custodian Fees].

  • Customer Service:

You may not be able to see into the future, but you can get a good inkling of what you can expect from a custodian if you take note of a few key things. Before you sign on the dotted line, read reviews, speak to other customers (if that’s an option), and pay attention to your interactions with representatives prior to becoming a customer.

2. Fund Account with Savings or a Rollover

There are two ways to fund SDIRA accounts: through direct contribution or with a rollover.

If you use savings to fund your SDIRA, opening an account and adding funds from your savings account will be easy. You’ll only be capped by the yearly contribution limit ($6,500 + a $1,000 catch-up rate if you are 50 or older), which is fine if you expect to contribute monthly and not in one lump sum.

At this stage, account holders choose from one of two account types (traditional or Roth IRA) for tax-deductible or tax-free growth before selecting investments aligned with their retirement planning goals.

Learn more about Traditional vs Roth IRAs.

If performing a rollover (e.g., transferring funds from a 401(k) or IRA into your SDIRA), request a direct rollover from your current retirement account custodian and transfer the proceeds to your new SDIRA. Your custodian will handle all of the little details so you can avoid any tax penalties.

3. Research Investment Options

Before you jump into any investment strategy, preliminary research is a must. A self-directed IRA is no different. Perform your due diligence on investment opportunities and talk to a financial advisor for any advice.

Investment diversity is a true benefit of this type of investment, but it also means you’ll need to review your asset options more thoroughly.

4. Begin Investing

Once you have opened your SDIRA account, allocated funds, and purchased assets, it’s time to enjoy long-term returns. We recommend choosing an asset class you are already familiar with for greater peace of mind as you watch your retirement savings grow.

Getting Started with Horizon Trust

Have more questions about opening a self-directed IRA? Ready to get started? When opening your self-directed IRA, the best thing you can do is speak to an experienced custodian who can help you find the best solution for your goals. Contact Horizon Trust today!

FAQs: Opening a Self-Directed IRA

How much money do you need to start a Self-Directed IRA?

The money needed to start an SDIRA depends on several factors, such as your custodian and the managed account type. While some custodians may offer no minimum balances, others may expect you to fund accounts with as little as a few hundred dollars. Any funding will also subject your SDIRA to the minimum annual contribution limits set by the IRS ($6,500 for individuals under 50 and $7,500 for those aged 50 and older).

How long does it take to open a self-directed IRA?

Opening an SDIRA can take as little as a day up to several weeks, depending on your custodian, account type, speediness, and providing all necessary documentation, such as account beneficiary and employment records.

Do I need an LLC for my self-directed IRA?

No, you do not need an LLC for your SDIRA. However, checkbook control IRAs offer greater control and flexibility over your retirement account, allowing account holders to write checks and buy/sell investments held within an SDIRA without custodian approval.

Do you pay taxes on a self-directed IRA?

The application rules for self-directed IRAs depend on the SDIRA type and transactions within the account. For example, traditional IRAs offer tax-deductible benefits, whereas Roth SDIRA accounts are funded with after-tax dollars, allowing contributions and earnings to grow tax-free.

What is the income limit for self-directed IRAs?

There is no income limit for participating in a Traditional self-directed IRA. However, Roth IRAs come with an income limit of $153,000 (Adjusted Gross Income) for single filers and $228,000 for married couples (2023).