What Is A Self Directed IRA: Everything You Need to Know

Whether you’re just starting to save for retirement or well into your investment journey, it’s never too late to learn about new options. Take control of your future with a self-directed IRA.

If you’re unfamiliar with alternative retirement plans, you might wonder: What is a self-directed IRA? Oxford Gold Group is here to explain everything you need to know about self-directed IRAs.

What Is a Self-Directed IRA?

Self-directed IRAs are individual retirement accounts (IRAs) that put you in control of your retirement plan. A custodian administers the account, but you have full control over investments, assets, and other functions as the account holder.

The biggest difference between SDIRAs and other IRA types is their investment options. Self-directed IRAs can hold various assets, while typical IRA accounts limit assets to stocks, bonds, exchange-traded funds (ETFs), and certificates of deposit (CDs).

Understanding Self-Directed IRAs

judge gavel and dollar bills on wooden table

Understanding the ins and outs of your SDIRA is vital. As this is a self-directed account, you won’t have a financial advisor to lean on.


SDIRAs, like other IRAs, are not subject to federal tax. However, you must pay tax on your contributions or withdrawals. When you pay taxes on your SDIRA depends on whether you open a traditional SDIRA or a Roth SDIRA.


Since your SDIRA is a savings account, avoid making early withdrawals. If you withdraw from traditional SDIRA accounts before you’re 59½, you pay a 10% penalty tax.

If you have a traditional SDIRA, the IRS requires you to begin making withdrawals starting at age 73. Your minimum withdrawal requirements depend on your personal life expectancy and account balance.

Contribution Limits

While you have more flexibility in your investment options, you must abide by the IRS’s contribution limit requirements. In 2023, you can contribute up to $6,500 if you’re under 50. If you’re older than 50, you can contribute up to $7,500 annually. If you overcontribute, you can characterize your contribution, apply it to the following year, or file a return of excess contribution form. If you don’t take action, you are subject to penalties.

Traditional vs. Roth SDIRA

wooden balancing scale with one big rock and one small rock

There are many account options for retirement funds, from 401(k)s and 403(b)s to other IRAs. If you’ve narrowed your choice to an SDIRA, you have another decision to make.

There are two SDIRAs to choose from: traditional SDIRAs and Roth SDIRAs. These account types differ in tax requirements, eligibility criteria, contribution regulations, and distribution rules.

If you opt for a traditional IRA, you benefit from an upfront tax break. However, when withdrawing from your SDIRA, you have to pay taxes on your withdrawals. On the other hand, a Roth IRA taxes your contributions before you withdraw, and your savings are free to grow tax-free.

Anyone can open a traditional IRA. However, to open a Roth IRA, you must make less than $135,000 annually as a single tax filer or less than $228,000 for those filing jointly.

While a traditional IRA requires you to start withdrawing from your SDIRA at age 73, a Roth IRA has no minimum distribution requirements (MDRs). Similarly, if you opt for a Roth IRA, you can make withdrawals at any time, penalty-free.

What Can I Invest in With an SDIRA?

If you feel limited by your options with other retirement accounts, an SDIRA is a practical way to broaden your horizons.

You can still utilize standard investments in an SDIRA. However, you can also invest in assets that are prohibited in other IRA accounts.

For example, you can hold real estate investments in SDIRAs. Holding tax liens and partnerships in your SDIRA is another option that is particularly useful for business owners.

While there is a long list of investment options for SDIRAs, the IRS does have some restrictions. The IRS does not allow you to invest the following assets in an SDIRA:

  • S corporation stocks
  • Life insurance
  • Collectibles, including stamps, rare coins, and jewelry
  • Any investment that constitutes a prohibited transaction

Despite these limitations, an SDIRA can open many doors. For example, you could start a precious metals IRA for any gold, silver, palladium, or platinum you own. Investing in alternative assets has numerous benefits.

How To Open an SDIRA

happy couple opening self directed individual retirement accounts

When you decide to open an SDIRA, follow these steps.

Choose an SDIRA Type

Individuals can open a traditional SDIRA or a Roth SDIRA. Business owners or employees have other types of IRAs to consider.

SDIRAs for Businesses and Employees

A simplified employee pension, or SEP, plan allows employers to contribute to traditional IRAs set up for their employees. A business of any size can open a SEP SDIRA.

A savings incentive match plan for employees (SIMPLE) is available to small businesses, which the IRS defines as those with 100 or fewer employees. This plan allows employers to match employees’ contributions to their SDIRAs dollar for dollar for up to 3% of each employee’s compensation.

A self-directed 401(k) allows employees to make pre-tax contributions to their retirement plan through payroll deductions. Since it is self-directed, there is more flexibility as either an account holder or employer.

Additional Options

Under some circumstances, you may also be eligible for a health savings account (HSA) or a Coverdell education savings account (CESA).

While people traditionally use HSAs to help pay out-of-pocket medical costs, they can also act as a retirement savings tool. You can build retirement savings by saving up portions of HSA assets each year.

Similarly, a CESA is an education savings account. A self-directed CESA accumulates tax-free contributions.

Find a Custodian

man checking the reviews and accreditation of custodian using mobile phone

To find a trustworthy company, verify their accreditation and look for customer reviews. Before agreeing to work with a company, ask about their experience with SDIRAs.

Open Your Account

When you settle on a custodian, they will help you open your self-directed IRA. At this point, you can establish a plan for the assets you intend to invest in your SDIRA.

Fund Your SDIRA

With your account set up, you can begin to fund it. Your options for funding include:

  • Rollover Distribution: Distributing assets from other retirement accounts into your SDIRA
  • Transferring: Transferring assets from one custodian to another
  • Roth Conversion: Converting deferred assets from other IRA accounts into a Roth IRA account
  • Out-of-Pocket Contribution: If you’re able to, you can also contribute to your SDIRA directly through a checking or savings account

Choose Your Investment

Next, choose what you want to invest in your SDIRA. Remember, the benefit of an SDIRA is that it opens up your investment options. You can invest:

  • Private Equity
  • Gold and other precious metals
  • Cryptocurrency
  • Real estate

When you choose your investment, your custodian will make the purchase for you. They pay all expenses with your funded SDIRA and put any resulting income back into it.

Manage Your SDIRA

Once you have your SDIRA set up, maintaining it is your responsibility. Keep an eye on your investment’s performance and adjust as needed. Since the IRS prohibits self-directed IRA account holders from receiving financial advice, you must learn to make the best choices for this account yourself.

When Choosing a Self-Directed IRA Custodian

investor picking red human block figure

Choosing the right custodian is a vital part of setting up an SDIRA. An unreliable custodian could mean significant losses. There are a few questions you can ask to ensure you are working with a reputable company.

What Are Its Investment Options?

Some SDIRA custodians may be more flexible than others. Pay attention to which investments they support and prohibit and how that aligns with your goals.

Does a State or Federal Entity Regulate the Company?

Find out which state or federal entity regulates the company. This could impact how your account functions. Ensure the company also follows these regulations, as you don’t want to face penalties for the misuse of your account.

How Many Years Has This Company Been in Business?

The longer a company has been in business, the better. It should have a long history of success with clients, and its experience will benefit you in the long run.

What Client Support Do They Offer?

Most company sites will detail their contact information. Do they have a customer service line? If so, how often is it available? How responsive is the company to client concerns?

What Fees Do They Charge?

Compare the fees of each SDIRA company. While fees can vary depending on many factors, you don’t want to overpay for a service you can find elsewhere.

What Investor Education Do They Offer?

While SDIRA account holders cannot receive official financial advice, some SDIRA custodians will offer resources for investors to educate themselves. This allows you to manage your SDIRA properly.

What Do Reviews or Testimonials Say?

Look at reviews and testimonials on and off the company’s site. Look at a balance of negative and positive reviews to gauge the overall client experience.

Benefits of Self-Directed IRAs

stack of coins calculator small house on blurred clock background

Having an SDIRA has several advantages.

Better Diversification

Portfolio diversification is ideal because it protects you in times of economic uncertainty. Relying too heavily on any type of asset is risky. With SDIRAs, you have more investment options and, therefore, more opportunities to diversify your portfolio.

Higher Potential Returns

Alternative assets could earn you higher returns than traditional assets. The more diverse your portfolio is, the more potential you have for higher returns.

Flexibility With Your Investments

Since SDIRAs allow for more investment options, you can invest in various assets. These include, but aren’t limited to:

  • Real estate
  • Private mortgages
  • Horses, livestock, and farmland
  • Intellectual property
  • Promissory notes
  • Cryptocurrencies
  • Partnerships
  • Precious metals

Legal Protection

SDIRAs also come with tax benefits. Depending on the type of SDIRA account you open, you can enjoy tax-free or tax-deferred contributions and withdrawals. Additionally, the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act protects holders of SDIRAs. This means that even if you have to file for bankruptcy, it won’t impact your SDIRA assets.

Risks of Self-Directed IRAs

man pulling piece of block in jenga tower

While SDIRAs have many benefits, they come with risks, too. Understanding both is vital to making a responsible financial decision.

Prohibited Transactions

Having an SDIRA comes with regulations. Making the wrong move could result in distributing all assets to you, making you responsible for taxes and penalties. Prohibited transactions include:

  • Transactions with disqualified persons
  • Transactions that indirectly benefit you today rather than in retirement
  • Self-dealing transactions

Due Diligence

Since holders of self-directed IRAs cannot receive financial advice, you must do your due diligence. This often requires a lot of research and strategizing. While this is fine if you’re experienced in investing, a lack of experience could be detrimental to your account.


SDIRAs have a complicated fee structure compared to other IRAs. They include a one-time establishment fee, an annual renewal fee, and investment bill paying fees, among others. These fees add up quickly.

Lack of Liquidity

While many traditional assets, like stocks, are easy to sell, some SDIRA assets aren’t as liquid. For example, if you invest in real estate, finding a buyer is a much longer process.

Lack of Transparency

There is sometimes a lack of transparency from SDIRA promoters. They may list the purchase price as the valuation, so you don’t know the assets’ true value. You should always take the time to verify information before making an investment.


Since SDIRA custodians don’t need to verify information from SDIRA promoters, this task is up to you. If you don’t know how to evaluate investment offers properly, you’re at risk of experiencing fraud. Therefore, ensuring you understand the ins and outs of the process is vital to ensuring the security of your investments.

Invest in Self-Directed IRAs With Oxford Gold Group

Now that you know the answer to “What is a self-directed IRA?” you can decide whether it would benefit your financial situation. If you move forward with an SDIRA, know that precious metal investments can be beneficial and that purchasing assets from a reputable company is essential.

At Oxford Gold Group, we’re passionate about helping people strengthen their retirement plans. Our variety of precious metals offers our customers the opportunity to diversify and strengthen their investment portfolios. For more information, call 833-600-GOLD or visit our products page.

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