What are the pros and cons of a self-directed IRA?

A self-directed IRA (SDIRA) gives you the power to invest in an almost endless list of alternative assets. However, because you are in total control over your investments, it requires the willingness and ability to do all of the necessary due diligence and account management that would usually be carried out by a bank or brokerage.

Who qualifies for a self-directed IRA?

The requirements for a self-directed IRA are the same as the IRA that you may have from a bank or brokerage. You must have earned income, be a U.S. citizen or permanent resident, and fall under any income limits as defined by the IRS (be sure to check with your financial advisor if you have questions about your eligibility).

What are the IRS rules associated with self-directed IRAs?

There are a few key IRS rules you must follow in order to maintain the tax-advantaged status of your self-directed IRA. The biggest ones are: avoid prohibited transactions, do not transact with disqualified persons, and follow investment restrictions (for example, you cannot invest in collectibles).

What are the tax implications of self-directed IRAs?

A self-directed IRA (SDIRA) enjoys the same tax benefits as any other IRA. A traditional self directed IRA can be funded with pre-tax dollars, lowering your current taxable income, whereas a self directed Roth IRA is funded with post-tax dollars; potentially allowing your income to grow tax free.

Self Directed IRA in 2025: Benefits, Fees & FAQs

What is a Self-Directed IRA (SDIRA)?

An SDIRA is an Individual Retirement Account (IRA) that empowers you to diversify your portfolio with alternative investments.

With one, you can invest your retirement funds beyond the stock market. A few popular options include private equity, precious metals, real estate, cryptocurrency, and more.

Put simply, if you’re looking for a tax efficient way to build a portfolio that’s more tailored to your interests and expertise, an SDIRA could be the answer.

Self-Directed IRA vs. Regular IRA
How to Open an SDIRA
Advantages and Risks of a Self-Directed IRA
What can I Invest In?
Getting Started
Frequently Asked Questions

Key Takeaways

With a self directed IRA (SDIRA), you can invest in an almost endless list of alternative assets, like real estate, private equity, precious metals, cryptocurrency and more.
An SDIRA is different from an IRA from a bank or brokerage firm because you, the account holder, decide what investments you make. Nothing moves in or out of your account without your direction.
By opening an SDIRA, you have the opportunity to create a more diverse and resilient portfolio by investing in assets that operate outside of traditional markets.
An SDIRA can be traditional or Roth, depending on your tax and investment strategy.
Because you are in total control of your retirement funds, it is crucial that you carry out your own due diligence and understand the IRS rules prior to making any investment.

What is the Difference between a Self-Directed IRA and a Regular IRA?

IRAs held at banks and brokerage firms offer limited investment options to their clients because they do not have the expertise or infrastructure to administer alternative assets. As an investor, however, your options are not limited to stocks and bonds if you choose to self-direct your retirement accounts. That’s why an SDIRA can transform your portfolio.

An SDIRA custodian is different because they have the appropriate staff, expertise, and capacity to maintain custody of the alternative investments. The first step in opening a self-directed IRA is to find a provider that is specialized in administering accounts for alternative investments.

Who qualifies for an SDIRA?

SDIRAs are often utilized by hands-on investors who are willing to take on the risks and responsibilities of selecting and vetting their investments. Self directed IRA accounts can also be great for investors who have specialized knowledge in a niche market that they would like to invest in.

Self-Directed IRAs: The Basics Guide

Learn about your investment options, Self-Directed IRA rules,
and much more!

How to Open an SDIRA

Opening an SDIRA can give you access to investments normally unavailable through a bank or brokerage firm. Here’s how to begin:

START

STEP 1

Find an SDIRA provider, like The
Entrust Group

STEP 2

Confirm they’re able to hold your
preferred investment

STEP 3

Choose whether you’d prefer a
traditional or Roth SDIRA

STEP 4

Set up the account and pay your
account establishment fee

STEP 5

Fund your account via a transfer,
rollover, or contribution

FINISH

Then, you can begin investing in alternative assets.

Traditional vs Roth SDIRA

The tax advantages are what make SDIRAs attractive for many. An SDIRA can be both traditional or Roth - the account type you choose will depend largely on your investment and tax strategy. Check with your financial or tax advisor if you’re unsure which is best for you.

Self Directed Roth IRA

Funded with post-tax dollars
Investments grow tax-free*
May be withdrawn tax-free*
Taxes on earnings aren’t due until withdrawn from the IRA

*If certain requirements are met

Self Directed Traditional IRA

Funded with pre-tax dollars
Potentially lowers your taxable income
Funds withdrawn from the IRA are subject to taxes
No income limits; contributions may not be deductible at higher incomes

The Advantages and Risks of a Self-Directed IRA

A self directed IRA is an incredibly powerful investment vehicle, but it’s not for everyone. As the saying goes: with great power comes great responsibility; and with an SDIRA, that couldn’t be more true. Keep reading to learn why an SDIRA might, or might not, be for you.

The Advantages of a Self-Directed IRA

Potential for Higher ROI

Diversify Your Portfolio

Leverage Tax-Advantaged
Retirement Accounts

Take Control of Your
Financial Future

The Risks of a Self-Directed IRA

Though there are many benefits associated with an SDIRA, it’s not without its own drawbacks. Some of the common reasons why investors don’t choose SDIRAs include:

Lack of liquidity

Increased responsibility

Greater potential for fraud

Fees

What Can I Invest in with an SDIRA?

Any investment legally allowed by the IRS can be held in a self directed IRA.

Real estate is one of the most popular options among SDIRA holders. That’s because you can invest in any type of real estate with a self-directed IRA. Some popular real estate investments include residential real estate, vacation rentals, commercial properties, farmland, and even mortgage notes. These are sometimes referred to as a “Real Estate IRA”.

Some other popular investment options include:

Getting Started with an SDIRA

Once you’ve found an SDIRA provider and opened your account, you may be wondering how to actually start investing. Understanding both the rules that govern SDIRAs, as well as how to fund your account, can help to lay the foundation for a future of successful investing.

IRS Rules Around Self-Directed IRAs

The main SDIRA rules from the IRS that investors need to understand are investment restrictions, disqualified persons, and prohibited transactions. Account holders must abide by SDIRA rules and regulations in order to preserve the tax-advantaged status of their account.

Increase the potential for growth

There are three types of investments that you are not allowed to invest in:

Life insurance
S Corporations
Collectibles

Disqualified Persons

These include yourself, your fiduciary and members of your family:

Spouse
Ancestor
Lineal descendant
Any spouse of a lineal descendant

Prohibited Transactions

Any transaction with a disqualified person constitutes a prohibited transaction.

See our Prohibited Transaction Flowchart for additional details.

Funding your Self-Directed IRA

There are three main methods to fund your account:

Transfer

Moving funds or assets from a single type of retirement account to a new financial institution.

Rollover

Moving funds from one type of account to another type of account, such as moving funds from a 401(k) to a traditional IRA.

Contribution

Adding cash directly to your account. Remember that contributions are subject to annual IRA contribution limits set by the IRS.

For additional details on each funding method, download our free funding guide.

Got questions about account types, specific investments, or anything in between?

Request a free consultation from one of our experienced SDIRA experts.

Frequently Asked Questions

I thought only stocks, bonds, or mutual funds were allowed in retirement accounts? Why haven’t I heard of this before?

Many investors are surprised to learn that using retirement funds to invest in alternative assets has been possible since 1974. However, most brokerage firms and banks focus on offering publicly traded securities, like stocks and bonds, because they lack the infrastructure and expertise to manage privately held assets, such as real estate or private equity. As a result, they tend not to promote self-directed IRAs, which offer the flexibility to invest in a broader range of assets.

Can I move my 401(k) into a self-directed IRA?

Yes, you can move (or “roll over”) your 401(k) into an SDIRA. This process is known as a 401(k) rollover. To do this, you typically need to have left the employer who sponsored your 401(k), as most employers do not allow in-service rollovers while you’re still employed.

Are there any disadvantages to a self-directed IRA?

Yes, there are several potential disadvantages to a self-directed IRA (SDIRA). Here are some key considerations:

Complexity and Responsibility: With an SDIRA, you have more control over your investments, but you also bear more responsibility. This includes understanding IRS regulations, managing investments, and avoiding prohibited transactions that could disqualify your IRA. A lack of knowledge could result in costly mistakes.
Limited Liquidity: Many of the alternative assets that can be held in an SDIRA, such as real estate, private equity, or precious metals, may not be easily liquidated. This can be an issue if you need to access funds quickly.
Higher Fees: SDIRAs often come with higher administrative costs compared to other IRAs, as certain aspects of the administrative process cannot be automated.
Due Diligence: It's called "self-directed" for a reason. With an SDIRA, you are entirely responsible for thoroughly researching and vetting investments.

Before opening an SDIRA, it’s important to weigh the potential advantages and disadvantages based on your specific financial goals and risk tolerance.

Can you invest in real estate with a self-directed IRA?

Yes, real estate is one of our clients’ most popular investments, sometimes called a real estate IRA. Clients have the option to invest in everything from rental properties, commercial real estate, undeveloped land, mortgage notes and much more.

What should I look for in a self-directed IRA provider?

When choosing a self-directed IRA (SDIRA) provider, there are several key factors to consider:

Experience and Reputation: Look for a provider with a solid track record and positive reviews.
Range of Investment Options: Ensure the provider allows the types of alternative investments you’re interested in, such as real estate, precious metals, or private equity.
Fees and Transparency: Evaluate the provider's fee structure, including account setup fees, transaction fees, and annual maintenance costs.
Customer Support: Look for a provider that offers dedicated support, including access to knowledgeable specialists who can answer questions about compliance and IRS rules.
Ease of Use and Technology: A user-friendly platform with online tools to track your investments, submit documents, and manage your account is crucial.

Can I invest in my own business with a self-directed IRA?

No, you cannot invest in your own business with a self-directed IRA. The IRS prohibits any transactions between your IRA and your own business because you, as the owner, are considered a disqualified person.

Self-Directed IRAs

Investment Options

Advisors & Issuers

Learning Center

About Entrust

What is a Self-Directed IRA (SDIRA)?