What is a Self-directed IRA? – A Primer

Published on November 19, 2013

and what is it not?

In this first part of the series we’ll be explaining exactly what a self-directed IRA is so that it might inspire you to think about the possibilities that self-directed IRAs can bring to your investment portfolio:


Most people know about or already have an individual retirement account (IRA) but many have yet to hear about or understand what a self-directed IRA is . . . and what a self-directed IRA is not. Self-directed IRAs have been around since the launch of the individual retirement account in the mid-1970s and are gaining popularity among many people who have grown tired of the unpredictable stock-and-bond markets.

The term “self-direct” explains something about these retirement plans but just scratches the surface of what they are.

Self-Directed IRA — What it is

In short, a self-directed IRA is one in which the individual account holder makes all his or her own investment decisions, in order to direct the types of investments made within the retirement plan. But to simply say it’s about controlling your investments is the tip of the self-direction iceberg.

Self-directed IRAs come in all types. They may be Traditional or Roth (for individuals), SEP (for the self-employed) or SIMPLE (for business owners and their employees). You may also self-direct the holdings in a health savings account (HSA), a Coverdell Education Savings Account, or a 401(k) if your employer allows self-directed IRAs as part of its plans.

Self-directed IRAs allow for a broader range of investments. The retirement accounts offered by banks and brokerage houses limit the types of assets you may invest in; the options are usually restricted to what the financial institution sells—stocks, bonds, mutual funds. Self-directed accounts allow for a much wider array of both traditional and nontraditional investments, such as real estate, precious metals, hedge funds, commodities, private placements, and much more.

Self-direction can help build a more lucrative retirement portfolio. As noted above, account holders make all their own investment decisions, usually based on assets they already know and understand, or might already be investing in outside of their existing IRA. This flexibility allows savvy investors to build a potentially more lucrative retirement portfolio based on particular interests or areas of expertise.

Self-direction requires knowledge. Making all your own investment decisions means also becoming educated about what is allowed and not allowed through self-directed retirement plans; there are many options and benefits to this retirement strategy but there are some restrictions. Self-direction is growing in popularity, which makes it so important that investors truly understand the many options and benefits—and the few restrictions—related to these eclectic retirement plans.

It also means truly understanding what those investments are all about, so it is wise to have some experience in them before making those transactions within your self-directed IRA. For example, if you are already trading commodities, investing in rental properties, or providing capital for startup companies, you can do so within your self-directed retirement plan and build retirement wealth with what you already know and understand.

In part two of our series on Self-directed IRAs we will describe what a self-directed IRA is NOT, before also bringing you some case studies and success story examples.  So please check back as we roll out our new self-directed IRA series.  If you have questions about self-directed IRAs in the meantime please give us a call at:  (888) 857-8058

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