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What is a Self-Directed IRA? Everything You Should Know About This Account
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10
min
Written by
Chris Kline
Fact-checked by
Steven Coufal
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You've seen the headlines. Maybe a friend made money with alternative investments like Real Estate or cryptocurrency. But not you. You're being careful with money you've spent decades earning.
There's a path many people in your position end up choosing. It allows you to put alternative investments inside a retirement account.
A custodian holds the assets in the account owner's name and administers the account.
That account is called a self-directed IRA. Before finding out if it's a great fit for you, let's start with what it actually is.
What is a self-directed IRA?
A self-directed IRA, or SDIRA, is a retirement account with more investment choices. It can hold real estate, precious metals, private companies, and cryptocurrency. You can hold these alongside, or instead of, stocks and bonds and it offers the same tax advantages as a Traditional or Roth IRA.
"Self-directed" doesn't mean alone. It means the menu includes more than whatever a brokerage chooses to sell. The IRS has long permitted IRAs to hold a wide range of assets. Most large brokerages don’t support those assets because they haven’t built systems to monetize them.
That's why specialized providers like Retired.com exist.
A common confusion: an SDIRA is still an IRA. The contribution limits, tax treatment, and withdrawal rules are exactly the same as a regular Traditional or Roth IRA. The only thing that changes is the portfolio of investments you’re allowed to make.
You're not on your own with the paperwork. A custodian holds the assets and handles IRS reporting.
In plain English: same tax benefits as a regular IRA, more freedom to choose what you invest in.
How is an SDIRA different from a Traditional or Roth IRA?
Most articles tangle themselves up when they explain this: you can set up an SDIRA as either Traditional or Roth. The flavor of tax treatment is your choice, same as any IRA. What changes is the menu.
Regular IRA at a brokerage | Self-directed IRA at a specialized custodian |
Stocks, bonds, mutual funds, ETFs from that broker's menu. | Everything in column 1, plus real estate, precious metals, private placements, cryptocurrency, promissory notes, and tax liens. |
Same contribution limits. | Same contribution limits. |
Same age and withdrawal rules. | Same age and withdrawal rules. |
Tax treatment depends on Traditional vs. Roth. | Tax treatment depends on Traditional vs. Roth. |
If you already have a Traditional or Roth IRA at a brokerage, you can roll some or all of it into an SDIRA. Generally, if done correctly, in a way that will not trigger taxes. We'll cover how that works in a few minutes.
How do I know if my IRA is self-directed? If your statement only shows stock, bond, or fund tickers, it isn't. Specialized custodians hold self-directed IRAs, and their statements look different.
What you can actually hold inside an SDIRA
Let's start with the question that probably brought you here: can you hold cryptocurrency in an SDIRA? Yes. Because the IRS classifies cryptocurrency as property.
Bitcoin, Ethereum, and other major cryptocurrencies can be held inside a self-directed IRA at a regulated custodian. You don't have to use a personal hot wallet, or an exchange that's prone to irreversible hacks.
For beginners, this may matter more than the tax piece. You don't manage a seed phrase. You don't run a hardware wallet. You don't worry about exchange custody risk in the same way. Some custodians holds the assets in institutional cold storage on your IRA's behalf.
Beyond crypto, here's what an SDIRA can hold:
Real estate (rental properties, raw land, single-family flips)
Precious metals (IRS-approved gold, silver, platinum, palladium)
Private equity and private placements
Promissory notes and private lending
Tax liens and tax deeds
LLC and partnership interests
Example: a 58-year-old who'd watched crypto from the sidelines rolls $40,000 from an old 401(k) into a Roth SDIRA and buys Bitcoin through the custodian. Any future growth is tax-free¹ when withdrawn at retirement.
Equally important: what isn't allowed. Collectibles (art, antiques, gems, most coins) and life insurance are off-limits under federal law, full stop. So is any investment where you or close family benefit personally before retirement.
→ See the full list of assets you can hold at Retired.com
Meet your custodian: what they do — and what they don't
An SDIRA custodian is typically a bank or trust company or another entity approved by the IRS.
Here's what your custodian does, in concrete terms:
Opens and titles the account in the name of your IRA
Holds the assets (cash, crypto, property deeds, share certificates, etc) on your IRA's behalf
Executes investment instructions at your direction and sends funds from the IRA to the investment(s) you have selected
Files required IRS forms (1099-R, 5498) every year
Tracks your contributions, distributions, and required minimum distributions
Here's what your custodian does not do:
Act as an investment, tax or legal advisor
Provide investment, tax, or legal advice
Endorse or recommend investments
Conduct due diligence on any investment
Three questions worth asking any custodian before you open an account: What are the fees, in writing? How fast does support respond? Do you hold the asset directly, or through a third party?
→ Talk to a Retired.com support specialist
The rules that keep your SDIRA in good standing
"Rules" sounds restrictive. Most SDIRA rules actually exist to protect the account's tax advantages. Break one rule, and the IRS may treat the whole account as a taxable payout.
That is the worst-case fear many beginners have, but good guardrails help prevent it.
Here's the short version of what to know.
Contribution limits for 2026. You can contribute $7,500 a year if you're under 50, or $8,600 if you're 50 or older. These limits cover all your IRAs combined.
Prohibited transactions and disqualified persons. You can't use the SDIRA to benefit yourself, your spouse, your parents, your kids, or your kids' spouses today. Concrete example: you cannot rent a property held in your SDIRA to your daughter, even at fair market rate. That's self-dealing.
Prohibited assets. Collectibles and life insurance are off-limits no matter how the deal is structured.
UBIT. Short for Unrelated Business Income Tax. It can apply when your IRA earns money from an active business or uses borrowed money. For example, a mortgaged rental. If this might apply, talk to a tax professional first.
Withdrawals. Same rules as any IRA. Distributions before age 59½ are generally taxable and may carry a 10% penalty. Required minimum distributions start at age 73.
If you were born in 1960 or later, they start at age 75.
This change is under SECURE 2.0.
It comes down to one idea: keep the IRA at arm's length from your personal life. Your custodian and a tax pro can flag issues before they happen.
Is a self-directed IRA right for you? A 5-question gut check
Are you comfortable researching investments on your own, or with help from an advisor or attorney you know?
Do you have at least 5 years before you'll need to draw on this money?
Are you familiar with at least one alternative asset class — real estate, precious metals, crypto, or private companies?
Are you willing to keep careful records — contributions, expenses, valuations — and answer occasional questions from your custodian?
Can you set aside enough funds in your IRA that the annual SDIRA fees feel reasonable in proportion to the account?
Count your yes answers.
4–5 yes: an SDIRA is likely a strong fit.
2–3 yes: you may benefit from talking with our team before opening an account.
0–1 yes: a regular IRA may be a better starting point, and that's a perfectly good answer.
There's no rush. The account will be there when you're ready.²
→ Not sure? Schedule a free 15-minute call with our team
What we hear from most often from new SDIRA investors
In our conversations with new SDIRA holders, the same worries come up again and again. None of them are silly.
"What if I get scammed?" SDIRAs do attract scams, because alternative investments are less standardized than stocks. Two habits cut most of the risk.
Never wire money for an investment you're unsure on.
Use a vetting checklist before any new asset.
"What if I lose my crypto keys?" In an SDIRA at a regulated custodian, you don't hold the keys. The custodian holds them in an institutional wallet. You don't have to worry about losing your retirement on a laptop.
"What if I make a mistake?" Most paperwork mistakes can be corrected. Most rule mistakes are caught by your custodian before they become tax events.
The expensive mistakes happen when people skip support and rush in. The fix is to ask first.
"What about RMDs and illiquid assets?" If you hold real estate or crypto in an SDIRA and reach RMD age, you may need to distribute the asset "in kind", at the fair market value. This is one of the most under-covered topics online, it’s worth a planning conversation if it sounds like your situation.
We can't make markets safer. We can make the account-holding part of your life calmer.
→ Talk to a Retired.com SDIRA specialist
How to open and fund your SDIRA
Three steps.
Open the account at a specialized custodian. With Retired.com, that's an online application that takes a few minutes. You'll choose your account type at this step.
Fund your account. Three options: a contribution from earned income (within annual limits), a transfer from another IRA (no tax impact), or a rollover from a 401(k), 403(b) or other employer sponsored plan (also no tax impact when done correctly).
Direct your investment.
Most first-timers want help on step 2. That's normal, and it's the moment our support team is built for.
→ Start your SDIRA application
Your next step
That was a lot. Take a breath.
A self-directed IRA isn't a leap into the unknown. It’s a regulated retirement account with more investment choices. A custodian helps with the paperwork. You can also get human support by phone.
If you're ready to talk it through with someone who has done this with hundreds of beginners, we'd be glad to hear from you.
Frequently Asked Questions About Self-Directed IRAs
What are the cons of a self-directed IRA?
SDIRAs often hold illiquid assets like real estate or private equity. Returns can be strong. But selling fast to cover a required minimum distribution or surprise expense is harder than with an asset like stocks.
Do you pay taxes on a self-directed IRA?
Like other IRAs, SDIRAs grow tax-deferred (Traditional) or tax-free (Roth). Income earned inside the account is generally not taxed until withdrawal, the same rules as a regular IRA.
Do IRA withdrawals affect SSDI?
SSDI isn't means-based, so it's not affected by non-work income like IRA distributions. You can take SDIRA withdrawals without changing your SSDI benefit amount.
How much money can you put in a self-directed IRA?
For 2026, the contribution limit is $7,500 a year, or $8,600 if you're 50 or older. SEP and SIMPLE IRAs for self-employed savers and small business owners allow more. These limits cover all of your IRAs combined.
Disclosures
Some taxes may apply. We recommend you consult your tax, legal or investment advisor.
Consult a qualified advisor or professional on the specific strategy that works for you
