Self-Directed IRA

A self-directed IRA is the same tax-advantaged account most investors already know — with one difference that changes everything: you, not a brokerage menu, decide what it holds.

Key takeaways

A self-directed IRA is a custody and investment model, not a separate tax type — it can be Traditional or Roth.
You direct the investments; the custodian holds assets and processes transactions but does not vet or approve them.
Alternative assets bring extra risk: illiquidity, valuation difficulty, UBIT/UDFI, and prohibited-transaction exposure.

What it is

Hold alternative assets inside a Traditional or Roth IRA. The account is a structure; the investments it holds are separate and carry their own risks.

Who it’s for

Investors who want to hold real estate, private companies, notes, or metals inside a retirement account
People comfortable performing their own due diligence
Those with a long horizon who can tolerate illiquidity
Investors who already max out conventional retirement options

How it works

Open a Traditional or Roth IRA in a self-directed custody model.
Fund it by contribution, transfer, or rollover.
Direct the custodian to purchase permitted assets and hold them in the IRA.

Eligibility

Anyone eligible for a Traditional or Roth IRA can use a self-directed model, subject to the same eligibility and income rules that apply to those accounts.

Contributions and funding

Same annual limits as any IRA — $7,500 (under 50) or $8,600 (50+, including the $1,100 catch-up) for 2026 — across all your IRAs combined. 2026 tax year

A worked example

Suppose you roll $150,000 from a former employer’s 401(k) into a self-directed Traditional IRA and direct it to buy a rental property for $140,000, holding $10,000 in cash. The rent flows into the IRA and every expense is paid from it — you may not stay in the property or repair it yourself. Had you borrowed to buy it, part of the rental income could be taxed as UDFI and reported on Form 990-T filed by the IRA.

What it can hold

Depending on the account, governing documents, and applicable rules: real estate, private equity, private notes, precious metals, and digital assets. Collectibles, life insurance, and transactions with disqualified persons are generally prohibited.

Taxes and reporting

Traditional balances grow tax-deferred; qualified Roth withdrawals can be tax-free. Alternative holdings may generate UBIT or UDFI that require a Form 990-T filing by the IRA. Requires tax review

Withdrawals and distributions

Distribution rules follow the underlying IRA type, including required minimum distributions for Traditional IRAs and the 10% additional tax on many early withdrawals unless an exception applies.

How Investor Services custodies it

As a directed custodian, Institutional Trust Company holds the asset in the IRA’s name and processes the transactions you direct. It does not evaluate, recommend, or approve the investment — the diligence and the decision are yours.

Risks and limitations

Fraud and unverified promoters
Illiquidity and hard-to-value assets
Prohibited transactions that can disqualify the IRA
UBIT/UDFI and annual valuation obligations

Common mistakes to avoid

Using or personally benefiting from an IRA-owned asset
Paying an asset’s expenses out of pocket instead of from the IRA
Transacting with a disqualified person
Letting the account run short of cash for fees, taxes, and expenses

Frequently asked questions

Does the custodian approve my investment?

No. A custodian holding or processing an asset is not an endorsement, valuation, due-diligence review, or determination that it complies with tax or securities law.

Is a self-directed IRA a separate account type?

No — it describes the custody and investment model. The tax treatment is still that of a Traditional or Roth IRA.

What is a prohibited transaction?

Improper dealings between the IRA and a disqualified person (for example, you, certain family, or entities you control). The outcome is fact-specific — get professional review. Requires legal review