What Is a Self-Directed IRA?

Take Control of your Retirement Funds

What is a self-directed IRA? A self-directed IRA is a powerful retirement plan that allows account owners to use alternative investments, such as real estate and private equity, to build retirement wealth. Plan owners have control over their own funds and investing decisions—and can invest in assets they know best to increase the earning potential in their IRAs.

Watch the video below to better understand what a self-directed IRA is.

What is a self-directed IRA?

Individual retirement accounts (IRAs) and self-directed IRAs offer the same tax-sheltered benefits and are governed by the same IRS rules and regulations. However, a self-directed IRA has two significant advantages that a typical IRA does not offer:

  1. Control over your retirement funds
  2. Freedom to choose alternative investments to build wealth in your plan

Older woman with long gray hair and dark-framed glasses sits are her laptop reviewing documents

What makes self-directed IRA plans more powerful than the rest?

  • The freedom to choose your own investments.
  • Self-directed IRAs allow you to invest off the stock market.
  • You can add diversity to your portfolio using a large variety of alternative assets.
  • Many alternatives can earn income at a faster pace than traditional assets.
  • You don’t rely on someone else to choose investments for you.

Benefits of Self-Directed IRAS

More Investment Options

The alternative investments available in self-directed plans are almost limitless. In fact, the number of assets in this class is so vast that the IRS doesn’t have a list of them. Instead, they provide a short list of assets that aren’t permissible in IRAs: life insurance contracts and collectables. Outside of those categories, you can invest in almost anything you can imagine to secure financial security in retirement.

Complete Control

We are all aware of the turbulence the stock market experiences. Many people lose sleep at night knowing that the investments they worked so hard for can possibly drop to zero value without warning. Self-direction gives you the ability to invest in tangible assets that you can buy and sell when you decide the time is right—without being dictated by the current state of the market.

Greater Flexibility

You have the option to use a checkbook IRA that allows you to write checks for your investments directly from your retirement funds. This feature reduces your chance of missing out on opportunities that require a quick close. In other words, you can grab that fixer-upper down the street ahead of your competition.

Tax-Deferred Income

Income from rental property and even capital gains from the sale of real estate grows on a tax-deferred basis in your account. This increases the amount of capital you have to reinvest.

Potential for Higher ROI

Alternative assets like real estate and private equity can provide a better return on your investment in a shorter amount of time than traditional investment options like stocks and bonds.

Investment Options in a Self-Directed IRA

These plans can certainly hold the traditional stocks, bonds, and mutual funds, but the unlimited options of alternative investments are what attract individuals to self-directed accounts.
Remember, there are so many options available that listing them for you is virtually impossible. But, some of the more popular alternative investments include:

Advanta IRA Offers All Self-Directed Plans

  • Traditional IRAPlan contributions are made with pre-tax wages, which may be tax deductible in the year you make them. Earnings in the account are tax deferred. When you retire, distributions are taxed as ordinary income.
  • Roth IRAAll contributions are made after tax, but the earnings grow on a tax-free basis provided that certain requirements are met.
  • Individual 401(k)An individual 401(k) or solo 401(k) 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).
  • Simplified Employee Pension Plan (SEP IRA): SEP IRAs are low-cost, easy plans utilized by the self-employed, partners, and owners of corporations who have less than 25 employees.
  • Savings Incentive Match Plan for Employees (SIMPLE IRA): A SIMPLE IRA is a retirement plan designed for small employers to offer their employees, which helps lower the business’s tax liability.
  • Health Savings Accounts (HSA)Your contributions to an HSA are tax-deductible, reducing your taxable income. Withdrawals are tax free as long as they are used to pay for qualified medical expenses.
  • Education Savings Accounts (ESA)These are tax-advantaged, custodial accounts similar to Roth IRAs, except funds must be used exclusively for paying qualified education expenses for the beneficiary.

Self-directed Plan Restrictions

Self-directed IRAs provide a great deal of freedom, flexibility, and an almost endless array of alternative investment options. They are also governed by a set of self-directed IRA rules that investors must be aware of and follow.

There are two types of limitations regarding self-directed investments:

  1. Restrictions on the types of investments that can be held in an IRA: The IRS does not permit investments in life insurance or collectibles. Collectibles include works of art, antiques, coins, gems, and stamps.
  2. Prohibited transactions with disqualified persons: There are certain individuals and entities with whom your IRA may not interact. This includes you, your spouse, and your lineal ascendants and lineal descendants. For example, you’re not allowed to stay in a vacation rental owned by your IRA.

This graphic illustrates the disqualified persons you may not deal with when investing with your self-directed IRA.

The IRS outlines and explains the prohibited transactions for retirement plans in IRC 4975. You can also learn about them in our IRS Rules and Regulations section.

For information that covers the specifics on managing your self-directed assets, how income and expenses are handled, and more—our FAQ section contains a more comprehensive list.

How Advanta IRA Helps You

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. Not all self-directed account administrators are alike. Some don’t have the capability to oversee every alternative investment option available—but Advanta IRA does.

Advanta IRA is a self-directed retirement plan administrator that serves clients across the nation. With over 20 years of experience, we have almost $3 billion in client assets under management.

You can trust us to ensure the administrative details of your account comply with IRS standards. We take care of those details, so you don’t have to. Instead, you can focus on the important task of finding investments to build your retirement wealth.

You work with a dedicated account manager.

Our clients each have a dedicated client account manager who works with them every step of the way, during every process. Working one-on-one with you, your account manager is proactive in helping you navigate the investment process.

Our mission is to enlighten and empower you to take an active role in building your retirement wealth. We believe that knowledge is power, control is key, and diversity is essential to build the retirement wealth you deserve. And, we are eager to help you achieve that.

We provide free events and complimentary consultations.

Our events are designed to help you learn more about self-direction and different alternative investments that can help you create a diverse portfolio.

Self-directed plan administrators like Advanta IRA are considered agents 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.

Free eBook

Self-Directed IRAs:
Take Control of Your Retirement Funds