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Self-Directed IRAs...Do You Need One?

Updated: Jan 4, 2023

First, let’s get some things straight. Do you have an IRA? If so, is your IRA invested in the usual plain-vanilla investments such as stocks, bonds, and mutual funds? If you can’t answer yes to both of these questions, then stop. You can go read the funnies or sports section instead of continuing here. (Unless you’re curious. …Admit it! You’re gonna keep reading even if you didn’t answer Yes to both questions.)

The IRS actually doesn’t care if you invest in just about anything except collectibles (such as art, antiques, old gold and silver coins, etc.), life insurance, and S corporation stock. The problem is that the usual IRA administrators, such as banks, brokerages, or trust companies, limit your choices for investments to publicly traded stocks, bonds, mutual funds, CDs, etc. Their contracts usually do not permit you to invest in other items such as real estate, precious metals, or cryptocurrency.

There is a way to bypass those limiting IRA administrator rules. Establish a self-directed IRA. Here is a partial list of items you can invest in when using a self-directed IRA. Real Estate, (including international holdings, not just USA), Private Businesses (C corporation Stock), Trust Deeds and Mortgages, Precious Metals, (such as gold, silver or platinum), Private offerings, Private Equity, Private Placements, LLCs, Limited Partnerships, REITS, Livestock, Oil and Gas interests, Franchises, Hedge Fuds, Crowd Funding, Farmland, Cryptocurrency, Promissory notes, and more.

Self-Directed IRAs are under the same basic rules as normal IRAs. You don’t pay taxes on them until you take out the earnings, but if you take out the money before age 59 ½, you are subject to a 10% penalty unless an exception applies. You can even have a self-directed ROTH IRA.

Why doesn’t everybody get a self-directed IRA? Well, they are more complex to administer and there are potential tax land mines to be avoided. That is too big a subject to discuss here. Suffice it to say, if you are interested in a self-directed IRA, when you find an administrator, ask them to explain all this before you sign up.

You will need to find an IRA custodian that allows self-directed investments. You can roll over traditional IRAs into self-directed IRAs. Most of the self-directed IRA custodians charge fees ranging from an annual flat fee, a per-asset fee, a percentage fee based on account value or any combination.

Key thing to remember is the IRA custodian handles all the funds and assets. All transactions must go through the custodian, who must approve, execute, and fund each transaction. There are specific prohibited transactions that your custodian can help you avoid. WARNING, there is even potential special taxes that a self-directed IRA must pay if not invested correctly.

Have you heard? Prov 32:9 says, “Don’t be like the horse, or the mule, which have no understanding, who are controlled by bit and bridle, or else they will not come near to you.”

Kelly Bullis is a Certified Public Accountant in Carson City. Contact him at 882-4459. On the web at Also on Facebook.

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