What is a Self-Directed IRA?

Read our Advertiser Disclosure.
Contributor, Benzinga
June 30, 2023

Several decades ago, when American union membership began to decline and private companies started rolling back employee pension programs, the government needed to create a way to allow workers to become investors and independently save for their retirements. One of the solutions they came up with was the individual retirement account, or IRA, which generally invests funds on behalf of the prospective retiree.

However, in a self-directed IRA, or SDIRA, accounts are managed by the investors themselves. The SDIRA offers investors a much higher level of control and input over their retirement savings. SDIRA holders are also given more autonomy to put investor contributions into alternative investments, such as real estate or precious metals. What are some of the best self-directed IRAs and how do they work?

Best Self-Directed IRAs

Best for Precious Metal and Gold IRA Investing: Advantage Gold

Advantage Gold offers a gold and precious metals IRA that features retirement planning and precious metals educational resources. The platform allows you to buy into gold, silver, platinum and palladium at your own pace. Plus, the customer service team can help you roll over and convert an existing IRA if you want to invest in your retirement in a unique manner. 


  • Access to a range of precious metals means you can both open an IRA or collect precious metals products
  • The customer service team offers a high level of support, especially when you need more information on what a Gold IRA entails


  • Using a platform like this may seem too risky, even though the precious metals market tends to be a safe hedge for most investors

Best for Experience Investors: Rocket Dollar

Rocket Dollar is relatively new to the self-directed IRA space, but it has made quite a statement as investors have been converting their accounts with the firm since 2018. Yes, there will be a one-time setup fee and a monthly administration fee, but this favors those with large portfolios who are making changes a bit closer to retirement. 

The standard investments you can use with Rocket Dollar include real estate, private equity, crypto and precious metals, meaning that you can generate any mix of assets that you prefer. 


  • Because you have access to so many alternative investments, you can easily choose a market that interest you
  • With a one-time setup fee and low administration fee, you’re not losing money to overhead costs


  • Your self-directed IRA can take on many different types of investments, but it might be easy to over-diversify your investments

Best for Real Estate Investing: uDirect IRA Services

  • securely through uDirect IRA's website
    securely through uDirect IRA's website
    Best For:
    Real Estate Investing

uDirect IRA was founded by a real estate expert (Karen Hall) as a way for prospective retirees to invest in the real estate market without feeling the trepidation that comes from purchasing and renting or selling properties independently.

Because the platform offers something known as “checkbook control” investors can access investment options like private loans, closely-held companies, accounts receivable financing, legal settlements and precious metals on their own terms. You decide where your money is going, and you simply pay a $35 per-transaction fee—the 1st 6 transactions are free.

Webinars are available, there’s plenty of information on the site and you can, as they say, “learn-and-earn” while planning for the future. 


  • The selection of webinars is a good place for investors to learn about self-directed IRAs
  • Checkbook control helps you take control of the process when you know exactly where you want your money to go
  • The option to learn-and-earn is good for those who have some knowledge of the markets but require a little tutorial on the SDIRA space


  • Some of the investment options on this platform might seem too daunting for prospective retirees

Best for Gold IRA: Augusta Precious Metals

Augusta Precious Metals is a unique choice for a massive range of investors who need that boutique touch that you would feel comes with precious metals investing. Everyone who starts with Augusta Precious Metals is matched with a personal investing assistant who can set up the precious metals IRA or convert another IRA, meaning that you don’t need to stress about the rollover process.


  • Augusta Precious Metals will match you with an advisor so that you have a point of contact for this new investment
  • You can also purchase gold coins and other gold products directly from the platform, which they are willing to store on your behalf


  • If you’re starting with a new IRA, you will need to make sure you’re prepared to buy in and fund your account immediately, which could be daunting with an alternative product

Best for Investors Experience: Alto IRA

  • securely through Alto IRA's website
    securely through Alto IRA's website
    Best For:
    Investors Experience

Alto IRA is an SDIRA that focuses on diversity more than anything else. Basically, Alto IRA takes the complexity out of retirement investing. The platform is tech-based so that it works well for everyone, and it partners with a range of alternative investment companies that make it easier to open up your portfolio to a world of diversity. 

With a low one-time fee and low maintenance fees, it’s easy to get what you need when you invest with Alto IRA and change the course of your retirement plan.


  • The platform handles all the back-end parts of your investment. All you do is choose where you want your money to go.
  • The large range of investment options is attractive to those who don’t want to focus on one market


  • The focus on diversity might make it difficult for you to get into the markets in which you prefer to invest

Best for Gold IRAs, New and Experienced Investors: American Hartford Gold

American Hartford Gold hosts a team of IRA specialists that are happy to assist you as you plan to roll over your existing IRA, set up a new account or get an idea of the costs involved. Accounts roll over fairly quickly with help from the customer service team, and you can invest in gold or silver as part of your new retirement plan.


  • American Hartford Gold does all the IRA setup for you
  • The account rollover period is very short
  • You can also purchase unique precious metals coins or bars from this platform


  • Some people may be tempted to shift their whole IRA to gold or silver, but that might not work out for you, depending on how much cash is in your current IRA

What Can You Invest in with a Self-Directed IRA? 

It helps to get everyone on the same page. Readers should know that there are three basic types of IRAs:

  • Traditional IRA
  • Roth IRA
  • Self-directed IRA 

In a traditional IRA, a worker can elect to have a certain percentage of their salary deducted on a tax-deferred basis (that helps sidestep capital gains taxes for a time) and put into the IRA. When the worker reaches retirement age, they can begin withdrawing from their IRA, at which point the withdrawals are subject to taxation. (Interestingly, your cash contribution can continue, if you so desire.) A Roth IRA works in much the same way, except that the contributions are taxed, meaning the investor draws on the proceeds without taxes once they reach retirement. 

Both traditional IRA and Roth IRA contributions are controlled by a private manager who grows the fund's value by investing in a variety of traditional investments. The individual investor has no control over the what investments are made, and fund managers can only use fund contributions to buy into traditional investment offerings like stocks and bonds. This is similar to pension benefits, which are managed outside your purview and provide you with a retirement estimate.

In contrast to a traditional or Roth IRA, where all the decisions are made by the fund manager, and they are limited to traditional investments, a self-directed IRA gives investors the ability to put their money into alternative investments. Examples of the kinds of investments you can make with SDIRA contributions include:

Thus, your investing strategy can change based on your cost of living, popular investment types, account fee structures, where you are on your retirement journey, any cash flow issues that might occur, etc.

Benefits of a Self-Directed IRA

Self-directed IRAs offer investors tangible benefits over traditional or Roth IRAs. Chief among them is direct control. With a traditional IRA or Roth IRA, an investor puts their money into a box and trusts the fund manager to grow their wealth.  Investors have little input as to what a simple IRA’s manager does with their money or where they put it. 

Sure, they get statements as to how well their fund is doing, but the early withdrawal fees and lack of liquidity means investors are pretty much stuck with whatever choices the account manager makes. A self-directed IRA investor, by contrast, is allowed to pick and choose what happens with their IRA contributions. So, for a savvy investor, this higher level of control can translate to rapid growth, even more so than a traditional brokerage account. Thus, you get more flexibility than Social Security, a pension and that IRA or 401k you signed up for when you get your first job.

Another significant benefit of the self directed IRA is the increased freedom that allows investors to use their IRA contributions to make alternative investments. Many of the alternative investments available to SDIRA holders offer higher potential returns than securities, stocks and bonds. Additionally, the ability to invest in real estate allows IRA investors to grow a portfolio of properties that can generate passive income for them in a way that traditional investments don’t. 

Lastly, the self directed IRA offers the investor a greater ability to diversify their portfolio with a tax benefit on that retirement account. Theoretically, a SDIRA investor could use half their contributions to make the kind of slow and steady investments of a traditional IRA, while using the other half of their contributions to diversify into higher-yield alternative offerings. 

Risks of a Self-Directed IRA

The independence and flexibility that comes with a self-directed IRA is a potential benefit for investors, but that doesn’t mean self directed IRAs are not without risk. First of all, as an investor, if you’re going to decide what to do with your IRA contributions, it’s critical for you to understand investing fundamentals and how they relate to your investment goals. 

Think of it this way: If you’re not an experienced driver, driving your car is probably a lot riskier than buying a bus ticket and leaving the driving to a professional. This risk level is elevated by the fact that you can make alternative investments with your self directed IRA contributions. 

Alternative investments certainly offer more upside than traditional investments but that upside also comes with more risk to your retirement savings. This is after all a retirement account, so if you manage it poorly or make investments that don’t pay off, you’ll only have yourself to blame when there isn’t enough money in the fund to sustain you in retirement. 

Liquidity also is an issue. Even though you have more control over what investments are made with your self-directed IRA contributions, the other penalties for early withdrawal still apply. In most cases, early withdrawals will eliminate all the tax-deferment benefits that come with having an IRA. So, the money you put into your self-directed IRA is pretty much untouchable for you. This is why a retirement calculator is helpful because you can learn what your potential income is and how much you should invest.

Even your self-directed IRA will not be completely self-directed. Yes, traditional and Roth IRAs have a fund manager who handles all the transactions. However, your self-directed IRA will still have a “custodian.” This custodian is basically a referee who regulates what self-directed IRA investments you can and can’t make. That’s important because making prohibited transactions is just as serious as early withdrawals, something you don’t worry about with a traditional retirement system.

How to Open a Self-Directed IRA

There are some brokerages that act as custodians for self-directed IRAs. With that said, most of the larger, more-recognized brokerages don’t offer this service because their business model doesn’t dovetail well with investor-controlled funds. Remember, the brokerages generally earn their commissions on investment offerings they make available to clients. Supervision of clients that make their own investment decisions isn’t something with a lot of financial upside for most brokerages. 

In most cases, you will have to find a company that specializes in supervising self-directed IRAs using your retirement funds. The best place to look for these is among banks and trust companies. The catch here is that each company may have its own rules on what the custodian considers an “allowable” investment, so make sure you pick a custodian whose self-directed IRA rules are flexible enough to allow the kind of investments you prefer to be added to your self-directed IRA portfolio. 

With all of this in mind, if you’re not a very experienced investor with a long track record of making successful investments, it’s advisable to hire a financial adviser to help you make investments with your self-directed IRA. Your retirement goals are easier to reach when someone is helping you out. They will not only be able to help you develop a coherent investment strategy, their early input should help you avoid making prohibited transactions that your custodian wouldn’t approve. 

Self-Directed IRA Rules

If you want to have a self-directed IRA, you also need to follow all the rules and regulations related to your IRA. One of the most important rules is regarding “prohibited transactions.” Examples of prohibited self-directed IRA transactions include:

  • Self-dealing. An IRA transaction involving the sale, exchange or rental of self-directed IRA assets with a disqualified person —  basically anyone who is an immediate relative of the self-directed IRA holder. For example, you couldn’t use your self-directed IRA to buy stock in a company run by you, your child or your spouse
  • Using self-directed IRA funds to extend credit, lend money to or otherwise make financial arrangements with a disqualified person
  • The exchange of goods and services for financial consideration between the self-directed IRA and any disqualified person. An example of this is the self-directed IRA holder who had a plumbing company doing a copper repipe on a piece of real estate owned by the IRA holder (or the IRA holder hiring an immediate relative to perform these services).
  • Using self-directed IRA assets to financially benefit or enrich a disqualified person. An example of this would be selling a rental property in your IRA but diverting the funds into your personal bank account instead of back into the IRA.

Any distributions or withdrawals you make from your self-directed IRA must be reported to the federal government. In a traditional IRA, the manager of your fund is responsible for making these reports and making them accurately. In a self-directed IRA, you are responsible for reporting on all distributions and withdrawals. 

Seeing as how the penalties for making prohibited transactions or working with disqualified persons can eliminate the tax breaks that make your self-directed IRA a good investment vehicle, it’s mission-critical that you have a good custodian and follow their instructions. Failure to do so could create a financial mess that takes years to clean up. 

Contribution Limits

If you make an incorrect withdrawal or early distribution, the penalties can be severe. You must also be mindful of the maximum contribution limits you can make to your IRA. For investors older than 50, the maximum annual amount you can contribute to any IRA (traditional, Roth or self-directed) is $7,000. For investors younger than 50, the maximum contribution is $6,000.

Should I Open a Self-Directed IRA?

Both traditional and self-directed IRAs offer several potential benefits to investors. Chief among them is the ability to make investments and build wealth on a tax-deferred basis, which allows you to make larger contributions and grow your wealth more quickly. The question of whether you should open a self-directed IRA depends on several variables. 

If you prefer alternative investments like real estate to traditional investments like mutual funds or stocks, there may be a benefit to you opening a self-directed IRA. Many of the alternative investments have more upside and a better potential payoff, but that also comes with elevated risk. If you feel comfortable managing this risk and/or have specific knowledge about certain alternative investments, a self-directed IRA could be a great investment vehicle for you. 

It’s important to understand your self-directed IRA is not necessarily a bread-making machine that you just set and forget. Even if you hire a financial adviser to help you, running a self-directed IRA will require a lot of effort and attention on your part. 

You have to be honest with yourself about how much risk you can bear and how much time you have to dedicate to your self-directed IRA. Ultimately, you are the only person who can answer the question about whether a self-directed IRA is right for you. The good news is, there is nothing stopping you from having a traditional IRA and a self-directed IRA at the same time.

Frequently Asked Questions


Is a self-directed IRA a good idea?


A self-directed IRA can be a good idea, so long as the account holder understands how to mitigate risk and only invests in safer assets. However, all investors should be warned that it’s best to only invest in less conservative assets with money that they are prepared to lose.


Can I set up a self-directed IRA myself?


You cannot set up a self-directed IRA yourself, but you can work with a custodian or third-party that will help you set up the IRA and direct your funds to the appropriate place.


Is a self-directed IRA better than a 401k?


Neither a 401k or a self-directed IRA is better, per se. However, a 401k is safer for the traditional retiree, while a self-directed IRA could involve a bit more risk.

Accelerate Your Wealth

Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.