When it comes to retirement planning, a self-directed IRA can be a powerful tool for building a more diverse and resilient portfolio. These accounts allow you to move beyond traditional stocks and bonds and invest in a wide range of alternative assets.

With more control comes more responsibility, which is why it’s essential to understand your options before getting started.

In this guide, we’ll explore five of the most trusted self-directed IRA investment options and offer practical tips to help you comply with IRS rules while working toward your long-term financial goals.

1. Precious Metals

Precious metals like gold, silver, and platinum are a great way to diversify your retirement portfolio. You can invest in precious metals in the physical form or through related stocks and ETFs.

These assets can provide protection against inflation and economic volatility, something that’s not true for many common market assets, like stocks and bonds.

Tip: To stay IRS-compliant, all physical metals must meet IRS quality standards and be held by an approved third-party depository. You cannot store metals at home or in a personal safe. Doing so can trigger prohibited transaction penalties and disqualify your IRA.

2. Private Lending and Promissory Notes

Private lending and promissory note investments allow you to issue secured or unsecured loans through your SDIRA in exchange for interest payments. These notes can be backed by real estate or other assets, generating consistent passive income while maintaining control over lending terms.

When you leverage these assets in your portfolio, you can complete due diligence, evaluate borrowers, set eligibility requirements, and determine loan rates and repayment terms.

Tip: You cannot lend to yourself, your spouse, parents, or any other disqualified person(s). Doing so would violate IRS rules and could result in taxes, penalties, or the disqualification of your IRA.

3.  Real Estate

Real estate is one of the most commonly used self-directed IRA investments. You can use your SDIRA account to purchase residential or commercial property and raw land.

Once in your portfolio, real estate can lead to passive income through leasing and rentals or an influx of capital once the property is sold. This versatility could create a strong portfolio.

Tip: All expenses and income must flow through your SDIRA, not your personal bank account. Additionally, if you use financing (like a non-recourse loan), your earnings may be subject to Unrelated Business Income Tax (UBIT). Always consult a tax advisor before leveraging real estate in your IRA.

4. Tax Liens

Tax liens or tax deeds are a low-capital, steady-return option for investors. They are a low-maintenance investment that can provide easy returns for your retirement fund.

Tax liens are imposed when property owners fail to pay taxes. They are filed in the county where the property is located.

Investors can purchase these liens and receive payback plus interest for owning the lien, or they can take possession of the property if the original owner does not pay it off. You can purchase these short-term or long-term tax liens (or tax deeds).

Tip: Rules for tax lien investing vary widely by state and county. Some regions offer tax deeds instead of liens. Be sure to research the local laws and auction procedures where you plan to invest.

5. Businesses Or Private Equity

Private equity or business investment can represent a lucrative opportunity when well-vetted, and allow you to leverage IRA funds to invest in businesses. Unlike publicly traded stocks, private equity allows you to invest in early-stage startups, established private companies, or even acquire ownership in a franchise or operating business.

These opportunities can offer higher returns and more direct influence compared to traditional investments.

Tip: You cannot invest in a company that you or a disqualified person owns more than 50% of, or from which you directly benefit (such as taking a salary or performing work). Avoid partnerships and S-Corps, which are not permitted under IRS rules. Always consult your custodian or legal advisor to verify eligibility.

Take Control of Your Retirement Strategy

While traditional stocks, bonds, and mutual funds can get you to retirement, they may not be enough to meet your savings goals. For tax-advantaged IRA growth and a strong path to retirement, consider an SDIRA that leverages one or more of the assets above.

With a diverse portfolio, you can build your nest egg, tap into higher earning potential, and hedge against inflation and market volatility.

Getting started is simple with the right custodian, market research, and due diligence. Before you start building your investment portfolio, consult a trusted financial advisor today.

Take your time and choose assets that will benefit you long-term. Your nest egg and future self will thank you. Once you’re ready to get started with self-directed investing, contact Horizon Trust to set up your account in no time.

FAQs

What other alternative assets can I include in my Self-Directed IRA?

In addition to the popular choices of real estate, precious metals, private equity, and cryptocurrency, investors can also use an SDIRA to hold assets such as tax lien certificates, promissory notes, and certain types of agricultural or energy investments. The key is ensuring that the investment is permitted by the IRS and handled according to SDIRA rules.

Are there restrictions on Self-Directed IRA investments?

Yes. While the list of allowed assets is extensive, there are clear restrictions. You cannot invest in life insurance or collectibles like art, rugs, antiques, or alcoholic beverages.

In addition, transactions with “disqualified persons,” such as yourself, your spouse, or certain family members, are prohibited. Violating these rules could disqualify the IRA’s tax benefits.

How do taxes work for different Self-Directed IRA investments?

If you hold your investments in a traditional SDIRA, your gains grow tax-deferred until you withdraw funds in retirement, at which point they are taxed as ordinary income. A Roth SDIRA allows you to pay taxes up front and potentially withdraw your gains tax-free in retirement, provided you follow the rules. The type of account you choose will influence the net return on your investments.