A self-directed IRA (SDIRA) is a retirement account that enables you to invest in alternative assets, such as real estate, private equity, promissory notes, or tax liens.

A self-directed IRA retains the same tax advantages as a standard IRA, while giving you more control over what you invest your retirement funds in.

With the proper knowledge and oversight, a self-directed IRA can help you build a portfolio that reflects your expertise and long-term goals.

Find out more about self-directed IRAs and whether they are the right retirement plan for you.

What is a Self-Directed IRA?

A self-directed IRA (SDIRA) is an individual retirement account that allows investors to go beyond standard Wall Street assets. Unlike standard IRAs and 401(k)s opened through a brokerage, an SDIRA gives you direct decision-making power over investment choices.

Self-directed IRAs can be structured as a Roth or a Traditional plan, allowing you to take advantage of tax-deferred or tax-free growth.

While SDIRAs offer unparalleled freedom for investors, they do come with additional rules and prohibited transactions that bar self-dealing or selling assets to a relative.

All assets are held in custody by a qualified custodian whom you will direct to make transactions on your behalf unless you have checkbook control enabled.

SDIRA Contribution Limits, Tax Advantages, and Structure

Like any IRA, self-directed accounts offer tax-advantaged growth. You can choose from the same account types, each with its own benefits:

• Traditional SDIRA. Contributions may be tax-deductible, and your earnings grow tax-deferred until you withdraw funds in retirement.
• Roth SDIRA. Funded with after-tax dollars; qualified withdrawals are tax-free in retirement.

Self-directed IRAs follow the same annual contribution limits as standard IRAs.

For 2025, you can contribute up to $7,000 per year, or $8,000 if you’re age 50+, due to the catch-up contribution allowance.

In addition, other retirement plans, such as SEP IRAs, Solo 401(k)s, and SIMPLE IRAs can be self-directed to expand their investing potential.

Alternative Investments for Your SDIRA

One of the biggest appeals of self-directed IRAs is access to alternative investments, or assets you generally can’t hold in a standard IRA. These may include:

• Real estate (residential, commercial, or land)
• Private equity or limited partnerships
• Precious metals (gold, silver, platinum, palladium) that meet IRS purity standards
• Promissory notes or private lending
• Tax liens or deeds

However, some assets remain prohibited, including life insurance contracts, collectibles (such as art or wine), and tangible personal property.

Pros and Cons of a Self-Directed IRA

A self-directed IRA offers more investment flexibility than a standard IRA, but it also requires more involvement and responsibility.

Before opening one, it’s important to understand the benefits as well as the potential challenges.

This helps you decide whether an SDIRA aligns with your experience, risk tolerance, and financial goals.

Pros of a Self-Directed IRA

• More investment choices. You’re not limited to stocks and mutual funds. You can invest in alternative assets such as real estate, private equity, and promissory notes.
• Greater diversification. By spreading funds across different asset types, you can reduce exposure to market volatility.
• Tax advantages remain the same. Whether Traditional or Roth, SDIRAs keep the same tax-deferred or tax-free growth structure as standard IRAs.
• Ability to invest in what you know. If you have industry expertise — real estate, local business lending, startups — you can apply that knowledge directly to your retirement strategy.

Cons of a Self-Directed IRA

• More responsibility on the investor. You manage due diligence, research, and oversight — not your custodian.
• Compliance risks. Prohibited transactions (like renting IRA property to a family member) can trigger penalties or even disqualify the account.
• Some assets may be illiquid. Investments like real estate or private equity may take time to sell or generate returns.
• Custodial and transaction fees can vary. Depending on the complexity of your investments, ongoing account fees may be higher than a standard brokerage IRA.

Building a diverse portfolio

A key advantage of self-directed investing is diversifying beyond traditional markets. Spreading your funds across multiple asset types can balance risk and reward, helping protect your savings from volatility.

Here are a few best practices for building a balanced SDIRA portfolio:

• Invest in what you understand. Stick to industries or assets where you have expertise.
• Blend short- and long-term holdings. Mix stable, income-producing investments (like rental property) with growth-oriented ones (like private equity).
• Avoid over-concentration. Don’t place all your capital in a single asset or market sector.

Diversification doesn’t eliminate risk but can strengthen your portfolio’s long-term resilience.

Current investment trends

Recent data from the Retirement Industry Trust Association (RITA) suggests that SDIRA investors are shifting how they allocate across alternative asset types:

• Real estate. While higher borrowing costs have pushed investors away from commercial real estate, residential investments are rebounding. This may indicate a gravitation toward smaller, income-producing residential properties and syndications with shorter hold periods.
• Private equity. Remains the leading alternative asset, with about 71% of SDIRA investors allocating to it in 2025, according to RITA data.
• Healthcare and medical technology: Participation in this category has doubled since 2023, driven by steady demand and innovation in an aging economy. Investors are targeting healthcare funds and startups focused on medical technology and patient care solutions.

These shifts suggest that investors are prioritizing diversification and stability over speculative growth, aligning SDIRA portfolios more closely with long-term income strategies.

Avoiding SDIRA Common Pitfalls

While SDIRAs offer freedom, they also have strict rules. Violating them, even unintentionally, can result in penalties or account disqualification.

To stay compliant:

• Avoid self-dealing, such as transferring personal property to your IRA.
• Don’t invest in assets used by disqualified individuals (yourself, spouse, parents, children, or grandparents).
• Never use IRA property for personal benefit. This includes living in it, renting it to relatives, or running a business out of it.
• Keep meticulous records of each transaction for tax reporting.

Before investing, consult a custodian or financial advisor familiar with self-directed accounts.

Are You Ready to Open a Self-directed IRA?

Self-directed IRAs can be powerful tools if you want to take charge of your retirement savings, but they’re not for everyone. Managing one requires time, research, and a willingness to understand IRS regulations, complete due diligence, and actively participate in portfolio management.

You might be ready for an SDIRA if you:

• Want to diversify beyond traditional stocks and funds
• Are comfortable performing due diligence on private investments
• Can commit to maintaining detailed records and compliance standards

If that sounds like you, a self-directed IRA could be the bridge between your expertise and a more flexible, customized retirement strategy.

FAQ

What are the rules for investing through a self-directed IRA?

You can invest in many asset types, but self-dealing and transactions with family members are prohibited. The IRS also bans investments in collectibles and life insurance. Always confirm eligibility with your custodian.

Is a self-directed IRA riskier than a Traditional IRA?

Potentially. Because SDIRAs hold alternative or illiquid assets, investors must handle due diligence and compliance themselves. Increased freedom can mean higher reward but also higher risk if you don’t thoroughly evaluate each investment.

What can you invest in with a self-directed IRA?

Common holdings include real estate, private equity, promissory notes, precious metals, and tax liens. These accounts let you diversify beyond stocks and bonds, but some assets, like art and collectibles, are off-limits.