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Using Self-Directed IRAs to Save for Retirement: Pros and Cons

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Self-directed IRAs offer a unique way to build retirement savings. Self-directed accounts differ from traditional retirement accounts in that they allow for alternative investments that are not traditionally offered by banks and other management firms.

Investments Allowed in a Self-Directed IRA:

  • Accounts receivable financing
  • Various real estate (homes, apartments, condos, commercial property, air space, billboards, offshore real estate, trust deeds, mortgage notes and more)
  • Contracts of sale
  • Foreign sales corporation stock
  • Gold bullion, palladium, US Treasury gold and silver coins
  • Limited liability companies (LLCs)
  • Limited partnerships
  • Private placements
  • Securities, CDs, stocks, bonds, mutual funds
  • Tax lien certificates
  • And many more

There is actually very little that a self-directed IRA cannot invest in:

  • Insurance
  • S corporations
  • Collectibles (such as art, antiques, wine, jewelry, etc).

Types of Accounts

There are various types of self-directed IRAs designed for various needs.

Individual Accounts

There are two types of accounts for individuals seeking to replace or supplement an employer-sponsored plan; self-directed Traditional IRAs and self-directed Roth IRAs. 

These accounts differ in the way they are taxed. Traditional IRAs will be taxed upon distribution (when you take money out of your account during retirement), while Roth IRAs will be taxed upon contribution (when you put money into the account during your saving years).

Note:  Individual self-directed accounts are also available to those saving for the purposes of health or education.  Health savings accounts (HSAs) and educational savings accounts (ESAs) can help to relieve the burden of saving for retirement by providing a cushion for some of life’s largest expenses.

Small Business Owner Accounts

There are three types of self-directed IRAs designed for use by small business owners, described below:

SEP IRA – A SEP (Simplified Employee Pension) IRA is designed for self-employed business owners, or partners/owners of corporations. This plan allows you to make contributions on behalf of yourself, as well as your employees.

SIMPLE IRA – A SIMPLE (Savings Incentive Match Plan for Employees) IRA is designed for business owners with less than 100 employees. It allows for contributions to both business owner and employees to encourage retirement saving for all.

Individual(k) or Solo 401(k) – The Individual(k), also known as a Solo 401(k) is designed for sole-proprietors with no other employees (other than a potential spouse or partner), and allows for maximum contributions.

Pros and Cons of Self-Directed IRAs


  • Same tax-advantages associated with other retirement accounts. Traditional accounts will appreciate on a tax-deferred basis, while Roth accounts will appreciate tax-free.
  • Self-directed IRAs allow holding of alternative investments, such as gold, real estate, and private stock.
  • Protects against traditional market volatility through true diversification of your retirement portfolio. 
  • Allows experienced investors to have more control over their retirement portfolios.


  • Investing in alternative assets carries a certain amount of risk. You will need to perform due diligence on investment opportunities to avoid fraudulent prospects, Ponzi schemes, and other scams.
  • Because of the large potential for tax advantages associated with self-directed IRAs, there are many rules and regulations that must be followed in order to avoid penalties on your account. A self-directed IRA administrator can help you navigate these caveats.

Saving for retirement is a consistent and important task. Explore educational resources and seek counsel from an experienced fiduciary to determine if a self-directed IRA is the best choice to help you meet your goals.


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