Saving for retirement with a standard retirement plan can feel passive: most investors set their money in pre-selected mutual funds and ETFs from a money manager and hope the market grows.

Investors who want more control over where their money goes or to invest in physical assets outside of the stock market have another option: self-directed investing. Self-directed retirement plans offer many of the same tax advantages as an IRA or 401(k), with the added ability to invest in a broader range of assets, including real estate, private equity, and other alternatives.

Several retirement plans can be self-directed to enable them to invest in alternative assets, including:

• Self-directed IRAs
• Self-directed SEP IRAs
• Self-directed SIMPLE IRAs
• Self-directed Solo 401(k)s
• Self-directed 401(k)s

With proper research and management, self-directed investing can help you build a retirement portfolio tailored to your goals and expertise. Here are five steps to help you open and begin investing with a self-directed account.

What Is Self-Directed Investing?

Self-directed investing gives account holders full authority over their retirement investments. Instead of relying on a brokerage to select common assets, specifically public securities, you decide how your money is allocated, with the option to extend into private markets.

With a self-directed account, you can hold alternative assets such as real estate, private loans, promissory notes, or precious metals, all within the same tax-advantaged IRA structure. A qualified custodian handles reporting and ensures compliance with IRS rules, while you make the investment decisions.

Getting Started: 5 Steps to Self-Directed Investing Today

Self-directed investing opens up the possibility of new investment decisions that can give you more control over your retirement savings.

Self-directed accounts do require an IRS-approved custodian, which differs slightly from traditional financial institutions, like banks, that may issue 401(k) plans.

Once you establish a self-directed account, follow these five steps to build wealth.

1. Familiarize Yourself with the Self-Directed Basics

With the flexibility of a self-directed plan comes added responsibility and rules. You, not your broker, perform due diligence, direct your custodian to make investments, and ensure every transaction complies with IRS regulations.

Understanding and avoiding prohibited transactions, such as using IRA funds for personal benefit or engaging in deals with disqualified persons, is essential. Staying informed and compliant protects your account’s tax-advantaged status and helps you invest confidently within the rules.

2. Choose the Right Tax-Advantaged Plan

Before investing, it’s important to decide whether a Traditional or Roth self-directed retirement plan best supports your long-term strategy. Both offer tax advantages, but they differ in when you pay taxes and how withdrawals are treated.

• Traditional Self-Directed IRA (SDIRA): Contributions may be tax-deductible, and your earnings grow tax-deferred until you begin withdrawals in retirement. However, you’ll owe ordinary income tax on distributions, and required minimum distributions (RMDs) must begin at age 73.
• Roth Self-Directed IRA (SDIRA): Funded with after-tax dollars, a Roth SDIRA allows your money to grow tax-free, and qualified withdrawals in retirement are completely tax-free. Roth IRAs are also exempt from RMDs during your lifetime, making them ideal for long-term, tax-free compounding or estate planning.
• SEP and SIMPLE SDIRAs: These plans are designed for self-employed individuals and small business owners who want higher contribution limits. However, Roth options are generally not available for SEP or SIMPLE SDIRAs, meaning all contributions are made pre-tax and taxed upon withdrawal.

Choosing the right plan affects not only how your contributions are taxed, but also your withdrawal flexibility, eligibility, and long-term growth potential. Always review IRS rules for contribution limits and qualification requirements before funding your account.

3. Build a clear investment plan

Once you’ve chosen your account type, outline how you’ll use it. Define your financial goals, risk tolerance, and timeline before committing funds.

A strong plan includes:

• A mix of short-term and long-term goals
• Defined contribution amounts and review dates
• Clear exit strategies for higher-risk assets

Written plans help investors stay disciplined through market shifts.

4. Perform careful due diligence

Research every opportunity before investing. Your custodian can cover a wide range of administrative tasks, but it’s your responsibility to vet investment opportunities. Verify the people, paperwork, and performance claims behind any alternative asset.

Due diligence can include checking for:

• Valid property titles, ownership records, or verified business filings
• Transparent fee schedules and clear cost disclosures from custodians or sponsors
• Liquidity limits and withdrawal restrictions, especially for private assets
• Third-party valuations or appraisals that confirm fair market value
• Regulatory or legal compliance, ensuring investments follow SEC or state rules
• Counterparty risk, such as the reliability of tenants, borrowers, or project managers
• Exit strategy and timeline, how and when you can realistically access returns

5. Diversify and rebalance regularly

Self-directed investing shines when paired with smart diversification. Combining traditional and alternative assets spreads risk and can smooth out returns.

For example, pair stable rental income from a real estate asset with higher-growth private equity, or add precious metals to hedge inflation.

Review your holdings annually to rebalance and align your strategy with your goals.

Note: Special brokerage accounts are required for self-directed accounts to invest in traditional securities.

How to Open a Self-Directed Investment Account

Now that you understand how self-directed investing works, the next step is opening your account. Choose an experienced self-directed IRA custodian that can guide you through IRS compliance, reporting, and funding procedures.

The process typically includes:

1. Selecting your account type (Traditional, Roth, SEP, SIMPLE, or Solo 401(k))
2. Completing an application with your chosen custodian
3. Funding your account via transfer, rollover, or new contribution
4. Identifying and directing your custodian to make your first investment

Once your account is active, maintain accurate records, monitor your performance, and review your portfolio regularly.

Self-directed investing gives you the power to take control of your retirement savings and pursue opportunities beyond Wall Street. With the right strategy, due diligence, and custodian support, you can diversify your portfolio, reduce risk, and create a retirement plan that reflects your goals and expertise.

FAQ

What is the difference between traditional and self-directed investing?

Traditional IRAs focus on public securities or assets traded on regulated exchanges such as stocks, bonds, mutual funds, and ETFs. Self-directed investing expands your choices to alternative assets such as real estate, private lending, or precious metals.

Can I roll over a 401(k) into a self-directed IRA?

Yes. If your plan allows rollovers or you’ve left your employer, you can transfer those funds into an SDIRA, following IRS rollover rules and contribution limits. A direct rollover, where funds move straight from your plan to the SDIRA, helps you avoid taxes or penalties during the transfer.

You can also execute an indirect rollover, in which you take possession of the funds and intend to redeposit them into the new account within 60 days to avoid taxes and penalties.

Who can open a self-directed IRA?

Almost anyone with earned income can open a self-directed IRA, as long as the taxable compensation, such as wages, salary, or self-employment income, meets any additional IRS requirements that apply to traditional or Roth IRAs.

You’ll also need a qualified custodian that offers self-directed accounts and allows the types of alternative assets you want to invest in.