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

a piggy bank beside a bottle with written ira on it

If you’re interested in managing a diverse portfolio of assets within your investment account, knowing the answer to the question “what is a self-directed IRA?” can be helpful.

This type of IRA differs from traditional IRAs in several crucial ways, so it’s essential to understand how to approach this type of account.

Basics of IRAs

An IRA is an individual retirement account. These accounts are an alternative to employer-provided retirement plans and can be a valuable tool for many people.

These accounts are commonly used in the United States to help clients prepare for retirement by serving as a growing source of savings. There are a few variations of IRAs, so we’ll start by explaining the basics of each.

Traditional IRA

The most commonly seen form of retirement account is the traditional IRA. These accounts typically consist of a diversified set of assets managed together with similar portfolios.

In addition, the government considers contributions to this type of IRA as tax-deductible, offering a compelling reason to choose this option.

However, traditional IRAs are subject to significant limitations, including limiting the account holder’s ability to influence investment decisions.

Account holders may only hold certain assets in a traditional IRA, so users concerned about reliance on the stock market should be wary.

Roth IRA

gold key with a written roth ira tag

Roth IRAs are similar to the traditional version, but you’ll make contributions after paying your taxes. Despite this downside, Roth IRAs offer consumers a compelling set of benefits.

These retirement accounts make it much easier to access your money earlier than planned, making it a more effective safety net than traditional options.


This type of IRA stands for “Savings Incentive Match Plan for Employees.” This type of retirement plan is provided by employers and functions similarly to a 401k account.

Employers can match deposits made by employees up to a pre-set limit, which can be a compelling incentive to draw new hires.

If this type of account is available to you, it is worth considering. Even if you choose to use a self-directed IRA as your primary retirement account, taking full advantage of the deposit matching is an excellent way to maximize your returns.

Self-Directed IRAs

self directed ira written on a financial report

Now that we’ve covered the basics of each available type of IRA, it’s time to discuss our main point. If you’re wondering, “what is a self-directed IRA?” this section will answer your question.

Self-directed IRAs are a unique type of retirement account that allows the account holder significant control over the investment strategy.

At the most basic level, much of the structure of self-directed IRAs is similar to other types. The exact same contribution limits apply, so you shouldn’t have to adjust your budget if you consider this type of account.

However, the management required by a self-directed IRA can vary significantly from other options, so read the following section to determine if it is the right choice for you.

Advantages of Self-Directed IRAs

While self-directed IRAs require more involvement on your part, they grant several essential advantages to investors. Firstly, this type of account grants access to various investment options.

Practically, self-directed IRAs fully support multiple kinds of assets not allowed in typical IRA accounts.

These investment opportunities come in a few different forms, each providing unique advantages for investors. For example, if stability is your priority, a self-directed IRA can allow you to invest a portion of your account into gold and other precious metals.

These investments ensure consistent growth while also protecting against inflation and other market fluctuations.

Self-directed IRAs also enable you to hold assets such as private equity placements and tax liens. While managing these assets can be far more complex than typical stocks or physical goods, skilled investors can use them to increase their earnings dramatically.

For investors interested in higher-risk, higher-reward trading, self-directed IRAs also allow you to invest in cryptocurrency assets.

Crypto has grown into a significant portion of overall investing and has become increasingly reliable in recent years. Although the market can be volatile, digital assets grant an impressive amount of flexibility and growth potential.

If you’re interested in getting involved with the quickly growing cryptocurrency industry, a self-directed IRA can be a great place to start.

This type of investing allows you to reap benefits when the market advances without being impacted too dramatically when the value drops.

Ultimately, a self-directed IRA allows investors greater earning potential than standard retirement accounts.

In addition, the access to different types of assets and the ability to assume greater control over the use of the assets makes these accounts an excellent option for experienced traders.

Challenges of Self-Directed IRAs

woman looking at her laptop and doing a self directed ira report

While self-directed IRAs have the potential to be more profitable than traditional retirement accounts, they also bring additional challenges. Before choosing a self-directed IRA, you must understand the risks involved, so read the following section to learn more.

You’re in Charge, for Better or Worse

If you’re considering a self-directed IRA, staying as informed as possible is crucial. With this type of retirement account, you’ll have a lot of choices to make regarding where you invest your money.

Unfortunately, custodians of self-directed IRAs do not provide investment advice, so it’s crucial to do your due diligence before making any investment decisions.

Additionally, because of the nature of these investment accounts, more user interaction will be required than with a traditional IRA.

If you choose a self-directed IRA, you’ll have a lot of influence over how you divide and invest the funds in your account, but this does come with added stress.

Because of this, self-directed IRAs are a practical option for those who already have significant experience exchanging stocks and other assets.

Another factor to consider is the risk of IRS rule violations. While stockbrokers and similar professionals handle most trading, the owner of the assets directly controls self-directed IRAs.

Therefore, it is up to you to ensure that you comply with all IRS regulations.

Violating these rules can be easier than you would expect, so be sure to research all of the regulations relevant to the appropriate type of investing.

For example, particularly complex rules apply to property investments, leading to the IRS requiring you to pay taxes on assets that your retirement account would otherwise protect.

Slower Liquidation

Self-directed IRAs can also be more difficult to liquidate than other types of investment accounts. Because the assets held in these accounts are often physical goods or property rather than stocks, it takes longer to sell your holdings and extract your funds.

While you typically can sell stocks by simply entering a sell order, you will have to find a buyer to sell some assets in a self-directed IRA.

This system also exposes you to the risk of scams. Because of this, the process of finding trustworthy buyers and sellers is an essential part of operating your self-directed IRA effectively.

While this isn’t an issue in all cases, it’s worth considering for investors who foresee needing to dip into their investment account early.

Fewer Protections Apply

While various protections exist to ensure that traditional retirement accounts remain safe, many of these rules do not apply to self-directed IRAs.

Due to this, a poor investment decision can be costly with this type of account, so a self-directed IRA often cannot provide the same stability as competing options.

While professionals guide the investments in a typical retirement account, the custodians of self-directed IRAs merely follow the direction of the investor.

Unfortunately, this means that when something goes wrong, the account holder is the only one responsible. This factor is a significant risk and makes it crucial to conduct extensive research before making any investment decisions.

One of the most important rules to keep in mind is that you cannot engage in any transactions with people with whom you have a close personal relationship.

Dealing with immediate family members particularly raises conflict of interest concerns, so be cautious when deciding with whom to do business.

The penalties for violating these rules can be costly, as they can make the assets in your IRA account immediately taxable.

We all know how stressful interactions with the IRS can be, so consider these rules before making any investment decisions.

Additional Fees

Generally, banks and other institutions do not charge fees on investments made into retirement accounts. However, self-directed IRAs do not qualify for the same benefits, so expect to pay trading fees when making investments with this type of account.

While these fees are generally relatively small, they can add up over time and therefore deserve mention.

Contact Us

man contacting oxford gold group using his cellphone

By reading this article, you learned a lot about, “what is a self directed ira?”. While there are downsides to consider, these retirement accounts can provide impressive flexibility and growth potential.

As a result, self-directed IRAs are worth considering for experienced stock traders or even savvy but inexperienced users.

If you’re considering a self-directed IRA, we can help. Offering gold and silver IRAs, Oxford Gold Group is a trusted provider of self-directed IRAs.

If you’re ready to take greater control over your future while protecting it with the stability of gold, contact us at (833) 600-GOLD today.

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