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Why You Need a Self-Directed IRA

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Are you tired of seeing your retirement balances go down? If so, a select group of IRA providers have just the product for you.

Most investors stick with ordinary types of investments in their retirement accounts, opting for stocks, bonds, mutual funds, and ETFs. But while those may be the most popular assets you'll find within retirement accounts, they definitely aren't the only ones allowed. In fact, IRAs can handle a wide variety of assets, including real estate and private business interests.

But in order to own these special assets in a retirement account, you'll have to find a firm that offers a self-directed IRA. And while lots of brokers, banks, and other institutions will let you open an IRA, most of them don't want to deal with the hassle of working with investments other than ordinary stocks and funds.

Why it's worth it
There are quite a few reasons why having a self-directed IRA can make sense:

  • If you've been working for a while, you may have most of your life savings locked up in a retirement account. As a result, if you want to take advantage of an opportunity to make a large investment in something unusual, your IRA will often be your best source of money to make your investment.
  • You may see more profit potential in a private investment than stock of public companies offers. Just as venture capitalists look to get in on the ground floor of businesses with good ideas, using your IRA to make an early investment in a promising business can give you a huge payoff if it proves successful.
  • If you want to invest in real estate, it's hard to find stocks that give you the same type of exposure that owning a particular property gives you. You could buy publicly traded REITs like Vornado Realty (NYSE: VNO  ) , Simon Property Group (NYSE: SPG  ) , and Equity Residential (NYSE: EQR  ) . But those are huge, diversified companies with holdings nationwide -- which provides stability, but at the cost of potential profit.
  • The same idea holds true for other investments. The opportunity to invest in a franchise business is much different from owning shares of McDonald's (NYSE: MCD  ) , Blockbuster (NYSE: BBI  ) , or Tim Hortons (NYSE: THI  ) . And an investment in shares of a miner like Newmont Mining (NYSE: NEM  ) won't have the same returns as owning actual gold and silver bullion coins.

What it boils down to is that if you have a lot of money in an IRA and want to expand your investments beyond ordinary securities, a self-directed IRA can help you do what you want with your money.

Watch out
Self-directed IRAs can get extremely tricky, especially if you want to play an active role in the business or property you're investing in. Numerous tax rules limit the types of investments you can make even in a self-directed IRA. In particular:

  • So-called self dealing rules prohibit you from owning a business in an IRA if you are an officer of that business or own a controlling interest. Similarly, if you own an asset like a vacation home in an IRA, you can't use it for your own personal benefit.
  • While buying real estate outright for an IRA is OK, the rules get complicated if you only have enough money to make a down payment and need to borrow to complete your purchase. It's critical that your personal funds not get commingled with your IRA.
  • Other complicated provisions, such as unrelated business income rules, present additional obstacles to some types of investments. You'll want to check with your accountant before committing to any investment through an IRA.

After realizing that a self-directed IRA isn't quite as simple as just opening an account, many investors may feel more comfortable sticking with stocks, bonds, and mutual funds that most IRAs hold. But if you have an entrepreneurial spirit and want to tap your retirement accounts for financing, a self-directed IRA can open the door to a bright future.

For more on making the most of an IRA, read about:

To get more advice on handling your IRA and other retirement savings, take a look at our Rule Your Retirement newsletter. Each issue comes with investing recommendations, along with useful information that will help you retire faster and live happier during your golden years. Best of all, you can take a free look with a 30-day trial.

Fool contributor Dan Caplinger plans to stick with a traditional IRA arrangement. He doesn't own shares of the companies mentioned in this article. Tim Hortons is a Motley Fool Global Gains pick. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy never retires.

Read/Post Comments (27) | Recommend This Article (44)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 08, 2009, at 6:00 PM, prginww wrote:

    Good article on self directed IRAs. I have been using one for a couple of years - investing in small rental properties. It's done well. Used Equity Trust.

    There's more info at

  • Report this Comment On January 12, 2009, at 4:43 PM, prginww wrote:

    Yes very good article and a timely one. We have just launched our site here

    We have a handful of very promising self direct IRA investment opportunities. Stop by if you want to learn more!

  • Report this Comment On January 14, 2009, at 11:09 AM, prginww wrote:

    Most IRAs can also be better diversified by putting your money into more asset classes. Investing 10% - 20% of your funds into managed futures accounts is a great example of this and is highly recommended by investment advisors. Most people when you ask them about investments will simply focus on the big 3: stocks, bonds, and cash. It is because this is all they know. I would recommend looking into researching managed futures if you would like to better diversify.

    If you are interested in managed futures, you can try They usually have some pretty good programs that they offer. This one: had a return in 2008 of over 128% and has averaged a monthly return of over 8% since its inception 5 years ago. The nice thing about these performance sheets is that you know they are authentic. Managed futures returns are regulated vigorously by the CFTC and are all stated NET OF EXPENSES.

  • Report this Comment On May 12, 2009, at 1:41 AM, prginww wrote:

    I have had great success with real estate and real estate note investing in self directed IRAs. And some hit and miss success with private placements. Not all custodians will allow real estate and notes, but here is a list of self directed IRA custodians that will and reviews on them:

    I would be very conservative with IRA investing and only steer your safest and most profitable deals into one.

  • Report this Comment On November 03, 2009, at 4:49 PM, prginww wrote:

    We have found investors to absolutely love this!! We are getting them a significantly higher return than stocks, money market or cds. Also, we are finding a large need in the real estate community, brokers are constantly calling us looking for money.

    Jason Mandler

  • Report this Comment On November 17, 2009, at 2:39 PM, prginww wrote:

    I am glad to see so many articles about self directed IRA's cropping up, and am even more excited to see interest. This is a field my associates and I have been involved in for a good while, and clients of ours are naturally interested in operating structures that allow them to invest in their own core competencies. This means our clients are investing in the broadest possible range of investments, from real estate to oil and gas partnerships, and even film distribution.

    Furthermore, we are committed to educating our clients as to what they can and cannot do, but most importantly is creating a custom tailored operating structure that enables them to make the investments they want to make. By minimizing overall costs and driving value for our clients we can help them truly unlock the potential in their retirement dollars.

    Please feel free to contact us with any questions you may have, and let us walk you through the process at your convenience. I am certain that after talking with us you will have the knowledge you need to proceed and the confidence to invest.


  • Report this Comment On September 13, 2010, at 8:02 PM, prginww wrote:

    Great post. I myself and looking for a Self Directed IRA and have looked at a few companies, ,, and entrust. I was curious if anyone had any thoughts on what I should look for when looking for someone to partner with in setting up a Self Directed IRA.



  • Report this Comment On November 09, 2010, at 11:57 AM, prginww wrote:

    I am just getting started with considering self directed IRA's and see names like Entrust, Pensco, ...How can I tell which are reputable, trustworthy, etc?

  • Report this Comment On November 23, 2010, at 2:31 PM, prginww wrote:

    We just posted about the same topic on our Hawaii community real estate blog. I personally use Entrust -- I like having a local representative I can call up and see in person if I need to. Read the post:

  • Report this Comment On May 16, 2011, at 7:21 PM, prginww wrote:

    I have an account with Equity Trust. They are low price and have good phone response time. In my opinion if you don't do anything complicated they are rated good to better. On the negative side I have had problems with communicating with them especially if you use email and occationally thru phone. When you email them and they email you back the return email does not contain a copy of your email. Their process is to transpose your email and give it to the team supporting you. So in dome cases It's hear for you to determine what they are eamiling about. I have also had problems the last 2 years with fees. In each case they did not record a rduction in my assets such that I was over charged. This year I asked for the partial refund based on my assets, which they had calcualted incorrectly calculated, they said they would prsent it to the management committee and it has been over 3 months and I am still waiting. I did call them a month ago and they said tehy were still working on it. However if you are late on your payment they will charge you a penalty. I have had other problems as a result of not being informed of my alternatives. Bottom line I will be closing my account with them.

  • Report this Comment On June 18, 2011, at 11:48 AM, prginww wrote:

    We have found investors to absolutely love this!! We are getting them a significantly higher return than stocks, money market or cds. Also, we are finding a large need in the real estate community, brokers are constantly calling us looking for money.

    Jack Lennon

  • Report this Comment On July 06, 2011, at 1:39 PM, prginww wrote:

    tlee404, Thank you for providing a relevent response to the article and posts from true investors. I will factor in your experience when considering Equity Trust.

    It's so annoying to see practically nothing but advertisements after an article. Out of sheer principle, I won't use any of these advertisers if I can get away with it. Thanks, again.

  • Report this Comment On July 12, 2011, at 10:09 PM, prginww wrote:

    My wife and I have found a vacation / retirement property "at the beach." I've started doing some research and have only a limited understanding about a Self-Directed IRA. I am looking for some sound advice that will help me decide if a self-directed IRA is the way to go here or not. Any suggestions?

  • Report this Comment On August 07, 2011, at 9:15 AM, prginww wrote:

    Dan, thank you for providing this insightful article. We investors need to use asset allocation strategies and take a percentage of our Retirement, IRA, 401k, 403B accounts out of the stock market. If you are still working and investing in retirement take a percentage of every investment and move it into SDIRA. Many of us are enjoying strong returns investing in real estate. Visit my website and learn more

  • Report this Comment On February 29, 2012, at 1:26 AM, prginww wrote:

    Great read. Checkbook control is indeed the way to go if you want to take charge of your retirement.

    Learn more about getting started with a self directed IRA LLC at

  • Report this Comment On March 25, 2012, at 11:45 PM, prginww wrote:

    Very nice article. A self directed is definitively the way to go to maximize your retirement earnings. I am converting my mothers 401 k into a self directed IRA and this is how we are investing

  • Report this Comment On June 12, 2012, at 6:49 PM, prginww wrote:

    Beware of the custodial companies! We lost our life savings because one of the companies mentioned did not take care of the paperwork properly. We are looking into a lawsuit, anyone know of a good securities attorney that will take a case on contigency? I can only say proceed with extreme caution in you are considering a self directed IRA. The custodians have so many disclainmers in their contracts, even if they screw up it's your fault.....

  • Report this Comment On February 22, 2013, at 2:55 PM, prginww wrote:

    I use IRA Services Trust to act as a custodian for our clients IRA LLC. Our firm has been dealing with them for about 8 years. For holding an IRA LLC I would definitely recommend IRA Services, but of course, you gotta know what you are doing.

    This site will help you get through the learning curve and if you need an IRA LLC set up, give us a call ;)

  • Report this Comment On October 22, 2013, at 2:35 PM, prginww wrote:

    Did you know that it is possible to get the tax protection of an IRA with the control and legal protection of a Limited Liability Company/Corp? You should check out to learn more!

  • Report this Comment On November 06, 2013, at 4:25 PM, prginww wrote:

    What about 401k Business Financing? Sort of like a SDIRA. I found this website: Any other info?

  • Report this Comment On November 15, 2013, at 5:02 PM, prginww wrote:

    Well there is an ever growing list of firms that can help you. I wanted to add my 2cents and the contact of the guys that really helped me understand the entire process, what the self-directed IRA can be used for and what is prohibited. They are not high pressure. As a matter of fact, they are quite the opposite because this IRA product needs to be understood. You can find a boat load of free information at or call them 800-530-8522. What I have learned is that is all comes down to being organized, educated and have the staff at IRAcheckbook on speed-dial for information (do people still use speed-dial, LOL)

  • Report this Comment On January 20, 2014, at 9:14 PM, prginww wrote:

    I'm interested in using a SDIRA to develop a portfolio of vacation properties. The article says: "if you own an asset like a vacation home in an IRA, you can't use it for your own personal benefit."

    How would the IRS ever know if you use a property for your own personal benefit?

  • Report this Comment On May 20, 2014, at 4:01 PM, prginww wrote:

    For a Self Directed IRA, Is it necessary to have an account with an organization to maintains the investment in an LLC? I don't feel that I am getting a straight answer from a "notrust" company (that I am not sure I trust) as they are charging close to $200/year, to hold the account (but due nothing - I won't touch it for another 20 years unless the bank gets sold and tripples the investment).

    I am only 42YOA, and rolled over a previous employments 401K into a LLC to purchase a bank. I have no interest in monitoring the money or this investment, and I don't want to be sucked dry on this investments in these fees if they are not necessary. My parents, who are at retirement age (Mother has been retired for 10 years) only pay $12.50 a Quarter (same NonTrust organization), and they actively move funds around.

    The funds were previously in a 401K with Fid$@* investments and lost money (as many did in the late 90's and early 2000. Parents started this Bank, and had previous sat on the board, and I trust them with this 401K rollover that I never would have monitored in the 1st place.

  • Report this Comment On June 03, 2014, at 5:05 PM, prginww wrote:

    I'm not sure why more people don't go for a self-directed IRA. They can be really great, so long as you're careful. I've known a lot of people who've had great experience through SD IRA Services, a company that's well known for their quality work.

  • Report this Comment On November 29, 2014, at 8:13 PM, prginww wrote:

    Hey guys,I see that this conversation started early in 2009,and I am so late to join it in 2014,but I hope I will add a valuable comment for people interested in opening a self-directed IRA.I guess that a self-directed IRA that contains precious metals in it would be a great option for those of you who are frightened of another stock market crash,or who are pissimistic about the future of the US Dollar.But the big problem is how to really evaluate these companies and avoid fraudulent ones from ripping you off,this page will allow you to learn how to choose a great precious metals self-directed IRA without much hassle.

  • Report this Comment On July 29, 2015, at 3:57 PM, prginww wrote:

    This is a good article. What it is missing is good reference sites to learn more. Here is one that investors can start with : This is a complete list of self directed IRA custodians and administrators that will accept alternative investments.

  • Report this Comment On February 12, 2016, at 12:37 PM, prginww wrote:

    Find a company that has been in business for a long time, has loads of testimonials and a BBB rating of A+.

    Check out

    Lots of information and really helpful people.

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