Self-Directed IRA Investments: 3 Popular Options

October 9, 2020

If you are a savvy investor seeking a broad diversification of alternative assets in which to invest for retirement, a self-directed IRA might be for you. As an investor, you are likely familiar with regular Individual Retirement Arrangements/Accounts (IRAs) and the standard assets such as stocks, bonds, mutual funds, or exchange-traded funds (ETFs) you may hold within them. A self-directed IRA (whether traditional or Roth) has the same IRA contribution limits as a regular IRA and still allows you to save for retirement on a tax-advantaged basis.

One important distinction is that you can only invest in self-directed IRAs by working with specialized firms that offer self-directed IRA custodial services. The Internal Revenue Service (IRS) maintains a list of entities (approved under IRS Treasury Regulation Section 1.408-2) to serve as nonbank trustees or custodians. The other significant difference between self-directed and regular IRAs is the types of assets allowed within the IRA account. Below, we outline three popular alternative investments permitted in a self-directed IRA but not in a regular IRA.

1. Real Estate

One of the most popular self-directed IRA investment options is real estate. Nearly any type of real estate investment is permissible, including apartment buildings, condominiums, commercial properties, improved or unimproved land, etc. Almost anything goes, as long as you don’t participate in “self-dealing” (purchase or sales transactions with anyone related to you), you have not invested any personal “sweat equity” toward improvements, and the property does not benefit you personally. e.g., you may not reside on the property nor offer it as a rental to anyone related to you.

2. Private Companies

As with all self-directed IRA investments, when it comes to private company investments, you must first seek a qualified custodian to hold the assets you elect to buy in the name of your self-directed IRA. You will direct the investment choices within the IRA, but you cannot own them directly. Once you select and open the IRA account with your custodian of choice, you can begin researching companies that appeal to your investment senses. While you will have significant flexibility regarding the type of business you invest in, be it domestic or overseas, the rules are very steadfast for your behavior regarding private company assets.

For instance, nothing about the business may be directly owned or controlled by you as an individual or any family member or spouse of a family member, including your own spouse. Additionally, no one involved in the fiduciary advising of your self-directed IRA (such as your lawyer or broker) can hold any interest in the business asset/s you select. You have the option to buy a fractional interest in a corporation, Limited Liability Corporation (LLC), or partnership, or you can buy the whole thing. In any case, you must have a clear understanding of how the special self-directed IRA rules apply.

3. Precious Metals

When you think about precious metals, chances are, one of the first things that comes to your mind is gold. Indeed, gold is one of the acceptable precious metals you may choose to hold as an asset in your self-directed IRA. However, we’re not talking about the discarded assortment of rings and necklaces in the back of your drawer or your Grandma’s heirloom jewelry — any items considered “trinkets” or “collectibles” are not allowed in a self-directed IRA. When investing in gold or any other precious metal such as silver, platinum, or palladium, it must be in the form of coins or bullion. (Bullion measures precious metals in metal content/mass rather than in value.)

Physically, bullion might come in bars or ingots acquired via a relationship with a reputable precious metals dealer. When considering precious metals, you can shop bullion dealers to compare prices and products, but to be deposited into your self-directed IRA, the physical coins, bars, or ingots must not be delivered to you: they must remain in the possession of a bank or an IRS-approved nonbank trustee. You cannot physically possess the precious metals. When locked safely in an approved custodial vault, precious metals can add value to your retirement account. According to A Beginner’s Guide to Precious Metals published by, “Precious metals can be a good portfolio diversifier and hedge against inflation.”

Self-Directed IRA Education

Whether you choose real estate, private companies, precious metals, or some other alternative assets to include in your self-directed IRA, the investment opportunities and risks of each are solely at your discretion – thus the term “self-directed.” Legally, because self-directed IRA custodians cannot give financial or investment advice, the responsibility of research and selection of assets rests solely with you, the account holder. Unless you possess a crystal-clear understanding of how to capitalize on the self-directed IRA option, it is imperative to seek education resources such as those offered by the Retirement Industry Trust Association (RITA) when considering a self-directed IRA.

Comprised of trustees, custodians, and administrators of self-directed retirement plans, RITA is the leading educator and advocate for the self-directed retirement plan industry. Members of RITA provide alternative asset administration for a wide variety of IRS-allowable alternative assets. RITA members must undergo regular audits, carry proof of multiple insurance policies, operate according to the IRS and Department of Labor requirements, and abide by the RITA Code of Ethics.