Guide
The complete guide to self-directed IRAs
What a self-directed IRA is, what you can and can’t hold, the rules that matter most, what it costs, and how to open one — in plain language.
A self-directed IRA (SDIRA) is a traditional or Roth IRA that lets you hold more than stocks, bonds, and funds. The tax treatment is identical to any other IRA; what changes is the menu. Through a self-directed custodian you can also hold real estate, private companies, notes, precious metals, and digital assets — provided you follow rules that are stricter than most investors expect.
What makes it “self-directed”
In a conventional IRA, you pick from a list the provider offers. In a self-directed IRA, you choose the investment and instruct the custodian to make it. The custodian holds the asset and processes the transaction, but it does not vet, approve, or recommend what you buy. That freedom is the whole point — and the whole risk. The due diligence is yours.
What you can hold
The permitted range is broad: real estate, private equity and venture, private credit and promissory notes, precious metals, digital assets, and the traditional assets you already know. Each has its own rules and tax edges — explore them in the Investment Explorer or read the individual asset guides.
What you can’t hold
The Code draws hard lines. An IRA may not hold collectibles — art, rugs, gems, most coins, alcoholic beverages (IRC § 408(m)) — with a narrow exception for bullion and certain coins that meet fineness standards. It may not hold life insurance on the account owner (IRC § 408(a)(3)), and it generally can’t hold S-corporation stock, because an IRA isn’t an eligible S-corp shareholder.
The rules that matter most
Three bodies of rule cause nearly all the trouble:
- Prohibited transactions and disqualified persons (IRC § 4975). Your IRA must stay at arm’s length from you and your close family. No buying from, selling to, lending to, or personally using IRA property. Cross the line and the IRA can be disqualified as of the first day of the year.
- UBIT and UDFI (IRC §§ 511–514). Operating-business income earned through a pass-through, and income attributable to debt used inside the IRA, can be taxable to the IRA on Form 990-T.
- Valuation and reporting. Illiquid assets still need a fair-market value each year for Form 5498; some require an independent appraisal.
Before you commit to an alternative-asset transaction, run it through the prohibited-transaction checker and read Prohibited transactions, explained.
Traditional or Roth
A self-directed IRA can be either. In a Traditional SDIRA, contributions may be deductible and growth is tax-deferred until you withdraw. In a Roth SDIRA, you contribute after-tax dollars and qualified withdrawals — including all the growth — are tax-free. For high-conviction, high-growth alternatives, many investors favor the Roth so the upside is never taxed. The 2026 contribution limit is $7,500 across all your IRAs, or $8,600 if you’re 50 or older; Roth eligibility phases out between $153,000–$168,000 (single) and $242,000–$252,000 (married filing jointly).
How to open one
- Choose Traditional or Roth, and open the account with a self-directed custodian.
- Fund it by contribution, transfer from another IRA, or rollover from an employer plan.
- Identify the investment and complete the custodian’s direction-of-investment paperwork.
- The custodian takes title in the IRA’s name and funds the purchase from account cash.
- Keep a cash reserve in the account for expenses, capital calls, and required distributions.
What it costs
Self-directed custody usually carries more fees than a mainstream brokerage, because there’s more administration. Expect some combination of an annual account fee, an asset-based or per-asset fee, and transaction fees for purchases, sales, and processing. Ask for the full schedule before you open, and model the fee drag against the return you expect.
The honest pros and cons
Advantages
- Access to assets a normal IRA can’t hold
- Tax-deferred or tax-free growth on alternatives
- Direct control over each investment decision
- Real diversification beyond public markets
Trade-offs
- Strict rules — mistakes can disqualify the IRA
- Illiquidity and harder valuation
- Higher fees and more paperwork
- No custodian vetting — fraud risk is real; see fraud prevention
Who it’s for — and who it isn’t
A self-directed IRA suits investors with genuine conviction in a specific asset, the discipline to follow the rules, and the patience for illiquidity. It’s a poor fit for anyone who wants a hands-off, low-cost, fully liquid retirement account — a conventional IRA does that better. If you’re unsure, start with the Investment Explorer and the rules checker before you commit a dollar.
Sources include the Internal Revenue Service and U.S. Department of Labor. This guide is general information, not tax or legal advice; confirm specifics with a qualified professional.
Educational only. This page is general information, not individualized investment, legal, or tax advice. Rules depend on your account type, transaction, tax year, and circumstances — consult a qualified professional.