Planning for retirement is a key part of your financial future, but not all financial vehicles are the same. Standard IRAs can offer access to basic investment assets, but your options and control are limited.

Self-directed IRAs (SDIRAs) offer the flexibility to invest in a broader range of assets. It also gives you more control over how and when you invest your money. But how does a self-directed IRA work, and is it the right fit for your goals and level of engagement? Here’s what you need to know.

What is a Self-directed IRA?

A self-directed IRA is a tax-advantaged retirement account that expands investment availability to include a range of alternative assets, such as real estate and private equity.  Unlike a Traditional IRA opened through a bank or brokerage, you decide which investments to buy and when you sell or hold them, not a financial institution.

Though SDIRA accounts vary in terms of asset selection and portfolio control, they share many of the same characteristics of standard IRA accounts, including contribution limits and account structure. When you open your account, you can typically choose between one of two structures:

• Traditional SDIRA. Contributions are made with pre-tax dollars and grow tax-deferred until retirement. Qualified withdrawals are subject to income tax.
• Roth SDIRA. Contributions are made with after-tax dollars, and qualified withdrawals are tax-free.

Regardless of which type of account you choose, it must be administered by an IRS-approved custodian or trustee, like Horizon Trust. Your custodian will not offer investment advice, but they conduct administrative duties and can help ensure your account maintains IRS and industry-specific compliance.

How to Successfully Manage a Self-Directed IRA?

Managing a self-directed IRA requires more involvement than a standard IRA. As the account owner, you control all investment decisions, which means you’re also responsible for due diligence and compliance with IRS rules.

Here are a few key steps you can take to set yourself up for success:

• Research your investment options. Understand which assets you can hold in your SDIRA and which are prohibited. Further, before you invest in a particular asset, complete due diligence to ensure it’s a credible opportunity and aligns with your savings goals.
• Create a clear investment strategy. Evaluate your goals, create a strategy, and choose a mix of assets to help you reach them. Consider the asset’s liquidity, risk level, potential ROI, and time to earnings.
• Choose the right SDIRA custodian. You must work with an IRS-approved custodian, but not all are created equal. Analyze key factors, such as fees and industry experience. You should choose a custodian with experience investing in the asset(s) of your choosing and a proven track record.
• Consider tax advantages. Traditional SDIRAs are often best suited for individuals in a lower tax bracket in retirement. Roth accounts are often best for those in a higher tax bracket in retirement, as withdrawals are tax-free.

Investing in Alternative Assets

A significant reason investors choose SDIRAs is the ability to invest beyond stocks, bonds, and mutual funds. With a self-directed IRA, you can hold alternative assets such as:

• Real estate, including residential, commercial, and raw land.
• Private equity
• Promissory notes
• Tax liens
• Precious metals (e.g., gold, silver, and platinum)
• Private lending
• Cryptocurrency

While SDIRAs allow you to invest in a range of assets, there are limitations to keep in mind. Specifically, SDIRA holders are prohibited from investing in art, collectibles, S corporations, alcohol, and life insurance.

Prohibited transactions also include any considered self-dealing, such as living in an investment property or engaging in transactions with disqualified persons, including spouses, children, grandchildren, parents, and the custodian.

How to Get Started

If you’ve decided self-directed investing is right for you, the process is straightforward:

1. Select your SDIRA custodian. Choose an experienced, IRS-approved custodian like Horizon Trust.
2. Complete your account application. You can typically open an account online or by visiting your custodian’s office. To open the account, you must provide the required information, such as your ID, social security number, and account information.
3. Fund your account. Use a transfer or rollover to move money between retirement accounts. You can also make a contribution from another account, such as a checking or savings account, but annual contributions are limited.
4. Choose your investments. Evaluate your investment options based on your strategy and compliance rules.
5. Monitor and maintain your account. Keep detailed records, perform regular reviews, and ensure IRS compliance.

Your involvement doesn’t stop after funding the account. Ongoing management is essential to protect your investments and grow your retirement savings.

Be Careful of Pitfalls

While SDIRAs offer more flexibility, they also come with more rules to follow. Common mistakes include:

• Prohibited transactions. You cannot use SDIRA assets for personal benefit before retirement or complete transactions with “disqualified persons” (such as yourself, certain family members, or business partners).
• Self-dealing. You can’t actively benefit from your investment. For example, you can’t use SDIRA-owned real estate as your vacation home or pay for property repairs with personal funds.
• Insufficient due diligence. Failing to research investments can lead to scams or underperforming assets.

Violating IRS rules can result in penalties, taxes, and even account disqualification—so always double-check compliance before making a move.

Is Self-Directed Investing Right for You?

Self-directed IRAs can be a powerful tool for retirement planning if you want more control and more investment options than a traditional IRA. Still, they aren’t right for everyone.

An SDIRA can be a good option if you’re comfortable researching and managing your own investments, want to diversify your portfolio with alternative assets, and understand or have resources that can help you navigate IRS rules and regulations.

An SDIRA may not be a good option if you prefer a managed portfolio or are uncomfortable researching opportunities and investing on your own.

FAQs

Can you take money out of an SDIRA?

Yes, you can withdraw funds from a self-directed IRA, but early withdrawals before age 59½ may be subject to taxes and a 10% penalty. Distributions follow the same rules as traditional or Roth IRAs, depending on your account type.

How much can you put in an SDIRA?

For 2025, you can contribute up to $7,000 to a self-directed IRA, or $8,000 if you’re 50 or older. This limit applies across all your IRA accounts combined. Roth SDIRAs have additional contribution limits based on your tax filing status and income.

What investments can you hold in a self-directed IRA?

Self-directed IRAs allow for various alternative investments beyond the typical stocks, bonds, and mutual funds. Popular options include real estate, private companies, promissory notes, precious metals, and tax lien certificates.

The IRS does not list every allowable investment but prohibits certain asset types, so verifying each investment’s eligibility before purchase is essential.