What Is a Self-Directed IRA?

Simply put … a self-directed Individual Retirement Account is an IRA which allows alternative investments for retirement savings. For regular IRAs, these options usually include stocks, bonds, and mutual funds. With a truly self-directed IRA, the term “self-directed” refers to the unlimited options of alternative investments available to you.

If you are not comfortable with the ups and downs of the stock market and want more control in directing your IRA dollars … then let’s explore the answers behind the popular question, “What is a Self-Directed IRA?”

Here’s what to expect in this article:

You may not know this, but self-directed retirement plans have been available since the early 1970s, but are becoming much more widely used today. In fact, self-directed IRAs hold approximately $146 billion in assets and that number climbs every year.

What Is a Self-Directed IRA Because more and more investors are tired of losing sleep over the nerve-racking Stock Market and are taking control of their own financial futures.

When you choose to self-direct, not only do you gain control of your retirement funds, you also gain access to a massive number of alternative assets that can help you build income.

The key to self-directed investing is to find what you know best. The alternative asset class is so vast, there is bound to be something you know and understand that you could invest in to build wealth for your retirement.

Self-Directed IRA Advantages

There are several advantages of a having a self-directed IRA. Here are the top reasons why you should consider these types of retirement accounts.

More Options. The list of potential investments in a self-directed IRA is so long that the IRS doesn’t bother creating the list. A self-directed IRA ultimately gives you the option to use your knowledge and expertise in choosing the investment that best suits you.

More Control. We are all aware of the potential turbulence of the stock market. It can cause sleepless nights knowing that the investments you’ve worked so hard for can possibly go to zero value without warning. A self-directed IRA gives you the ability to invest in tangible assets. Typical custodians force you to buy the stocks and bonds they sell. Take control of your investments and invest in what you want with a self-directed IRA.

More Flexibility. You can opt to manage the self-directed IRA yourself. With the ability to write checks for your investments, you reduce the chance of missing out on opportunities that require a quick close. This can also save on administration fees and free up more capital to invest with.

More Tax Benefits. You can set up the self-directed IRA as a Roth IRA and benefit from tax-free growth of your investment assets.

Higher ROI. Alternative assets like real estate can provide a better return on your investment than traditional investment options like stocks and bonds.

Investment Options in a Self-Directed IRA

There are so many options available in this asset class that listing them for you is virtually impossible. The only things you’re unable to invest in using self-directed plans are life insurance contracts and collectibles. Other than that, and provided that you adhere to the rules and regulations governing self-directed plans, you can use your retirement plans to acquire just about anything you think has potential to earn that critical tax-sheltered income!

Some of the more popular alternative investments include:

  • Real estate
    As the #1 investment choice, real estate in self-directed IRAs can include rental properties, rehab-and-flip properties, property tax liens and deeds, multi-family properties (i.e. apartment complexes), commercial property, and raw land.
  • Private money lending (i.e. hard money loans or private mortgages)
  • Precious metal (i.e. Gold and silver coins or bullion bars)
  • Cryptocurrency (i.e. Bitcoin)
  • Single-members LLCs
    Also known as a Checkbook IRA, this is a self-directed IRA that forms a single-member LLC and obtains the ability to write checks directly out of the IRA for the purchase of alternative investments.
  • Foreign exchange trading
    FOREX is a decentralized global market where all the world’s currencies trade. It is the largest, most liquid market in the world with an average daily trading volume exceeding $5 trillion.
  • Private equity and private stock
    Private placements could be stock in your local community bank, a venture capital investment in a startup tech or medical firm, a hedge fund or even a group of private investors pooling capital in an LLC to make a larger real estate purchase.

And, here’s another thing … self-directed retirement plans are not restricted to traditional IRAs.

Here are the different IRA retirement plans that can be self-directed:

  • Traditional IRA 
    You should consider self-directing a traditional IRA if you are eligible to deduct your contribution now and you anticipate your tax rate at retirement to be lower than your current tax rate.
  • Roth IRA
    All contributions are made after tax, but the earnings grow on a tax-free basis provided that certain requirements are met.
  • Simplified Employee Pension Plan (SEP IRA)
    SEP IRAs are low-cost, easy plans utilized by the self-employed, partners, and owners of corporations.
  • Savings Incentive Match Plan for Employees (SIMPLE IRA)
    A SIMPLE IRA is a retirement plan designed for small employers to offer their employees.
  • Individual 401(k)
    An Individual 401(k) or Solo 401(k) plan is a qualified profit-sharing retirement plan with a 401(k) option but designed to be less complicated and not as costly as a traditional 401(k).
  • Health Savings Accounts (HSA)
    The funds contributed to your HSA are tax-deductible, reducing your taxable income. When funds are distributed out of the HSA to pay for qualified medical expenses, the funds then come out of the HSA plan tax-free.
  • Education Savings Accounts (ESA)
    A Coverdell ESA is a tax-advantaged, custodial account similar to a Roth IRA, except funds must be used exclusively for paying education expenses for the beneficiary.

These plans can certainly hold the traditional stocks, bonds, and mutual funds, but the unlimited options of alternative investments are what attract owners of these accounts.

 back to top

Self-Directed IRA Restrictions

Self-directed IRAs provide a great deal of freedom, flexibility, and choice of alternative investments. They are also governed by a set of self-directed IRA rules that investors must be aware of and follow.

The IRS outlines and explains the prohibited transactions for a self-directed IRA in IRC 4975.

self directed ira disqualified persons

There are two types of limitations in regards to IRA investments:

  • Restrictions on the types of investments that can be held in an IRA;
  • Prohibited transactions with disqualified persons.

Fortunately, these restrictions are minimal. The Internal Revenue Code Section 4975 permits you to invest your IRA into any type of asset other than life insurance and collectibles, such as artwork, antiques, stamps, etc. Prohibited transactions governed by IRC 4975 include any transaction between your IRA and yourself or other disqualified persons, or any disqualified person receiving a current benefit from the assets in your IRA.

Self-Directed IRA Custodians

You work hard to grow income so you can comfortably retire. Make sure you work with the right retirement plan administrator that can enable you to meet your goals.

Advanta IRA is a truly self-directed retirement plan administrator that serves clients across the nation. We provide unparalleled service to clients who choose to achieve diversity in their plans by investing in alternative assets using self-directed IRAs and similar plans.

The typical non-self-directed IRA custodian restricts their clients’ investments to traditional stocks, bonds and mutual funds—assets that they sell and oversee.

Clients of Advanta IRA actively participate in building their retirement income using The Advanta IRA® and other self-directed plans. They control their own retirement funds. They have the freedom to choose their own investments. And, our clients trust us to provide impeccable services to their accounts while they focus on investing in what they know best to reach their goals.

Advanta IRA does not sell investments or make a commission on investments in our clients’ plans. We do not give investment or financial advice – that action is prohibited by the IRS.

Clients enjoy the freedom to choose investments based on their own knowledge and expertise—having the power to control their retirement destiny.

 back to top

Frequently Asked Questions 

Why haven’t I heard of self-directed IRAs before?

Most banks and brokerage firms use traditional investments that they sell, such as stocks, bonds, and mutual funds, when choosing assets for your IRA. Your current financial professional may not even be aware of the variety of additional options available to you as a consumer. Self-directed IRAs allow you to choose alternative investments that exist outside the Wall Street norm to build retirement wealth.

Can other plans be self-directed besides a traditional IRA?

Yes. Traditional, Roth, SEP and SIMPLE IRAs can be self-directed, along with individual 401(k) plans, and also health and education savings plans.

How long does it take to open an account?

Once we receive the completed forms, your account often opens the same day. When we receive your forms, an Advanta IRA representative contacts you as soon as possible to assist you in getting the proper forms completed and executed. Then, you’re able to fund it and begin investing right away.

How can I fund my Advanta IRA account?

There are three different ways to fund your account:

  • Make an IRA-to-IRA transfer
  • Roll funds over from your 401(k) or another employer-sponsored plan
  • Cash contribution

What does Advanta IRA offer for my retirement plan?

Advanta IRA is considered an agent for custodial banks. We provide record keeping as well as tax reporting for non-traditional assets in self-directed accounts. For plans which are deemed qualified under the IRS code such as the individual 401(k), we provide the plan documents as well as record-keeping services for the assets you choose.

How are income and expenses handled in my IRA?

Income flows directly into the IRA and expenses must be paid with funds from the IRA. You are not allowed to pay expenses personally and reimburse yourself. If you partnered your IRA funds to invest, income and expenses are received and paid based on the percentage of ownership the account holds.

How do I know which plan is the best for me?

There are many factors to consider when choosing the right plan for you. Age, contribution and deferral capability, company status (sole proprietor or owner), tax position, age you wish to retire, and whether or not you have common-law employees are all considerations when choosing the right plan. Regardless of which plan you choose, Advanta IRA clients can invest in numerous options beyond traditional stocks, bonds, and mutual funds.

Because of the complexity of many investment options, you should consult a financial expert when investing in areas beyond your own expertise. It is important to be familiar and comfortable with the investments you choose before making decisions.

How do I get started self-directing my IRA?

You can get started in 4 easy steps:

  • Open an account.
  • Fund your account.
  • Identify which investment(s) you want to purchase.
  • Contact your Advanta IRA representative and we make the purchase on behalf of your account.


How Can We Help You?

Advanta IRA is a self-directed retirement plan administrator that serves clients across the nation. Our staff is dedicated to helping you reach your goals. We don’t sell investments or give advice, but we do help you learn how to use self-directed accounts and ensure your plans with us operate within compliance of IRS rules and regulations.

We offer free events designed to help you understand and identify diverse options—and you’ll get your own personal account representative who guides you every step of the way.

Would you like to learn more? Contact us to find out how to get started self-directing your IRA today.

 back to top

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.