Self-Directed IRA

Self-Directed IRA (SDIRA)

Invest your retirement savings in real estate, private equity, precious metals, and beyond, with all the tax advantages of an IRA.

What Is a Self-Directed IRA?

A Self-Directed IRA (SDIRA) is technically the same type of account as a Traditional or Roth IRA, with the same contribution limits, tax treatment, and rules. The difference is the custodian: a specialized SDIRA custodian permits investment in assets beyond stocks, bonds, and mutual funds.

SDIRAs are popular with experienced investors who want exposure to real estate, private businesses, hard money loans, and other alternative assets inside a tax-advantaged wrapper.

What Can You Invest In?

✓ Allowed Investments

Residential and commercial real estate
Raw land and development properties
Private equity and LLC interests
Private mortgages and hard money loans
Precious metals (gold, silver, platinum, palladium)
Tax liens and tax deeds
Cryptocurrency and digital assets
Structured settlements
Foreign real estate

✗ Prohibited Investments

✗Life insurance policies
✗Collectibles (artwork, antiques, wine, coins except specific bullion)
✗S-Corporation stock
✗Any transaction with a 'disqualified person'

Prohibited Transactions: The Most Critical Rule

Violations Can Disqualify Your Entire IRA

If you engage in a prohibited transaction, the IRS can treat the entire IRA as distributed as of January 1 of the year of the violation, resulting in taxes and penalties on the full account balance. This is not a gray area.

Prohibited transactions occur when the IRA engages in a transaction with a "disqualified person," which includes:

You (the IRA owner)
Your spouse
Your parents, grandparents, children, grandchildren, and their spouses
Any entity you own 50%+ of
IRA fiduciaries and advisors

Example of a prohibited transaction: Your SDIRA owns a rental property and you personally perform repairs on it (providing services = a prohibited transaction). A hired third party must do all work.

UBIT: Unrelated Business Income Tax

When an SDIRA invests in an operating business or uses debt financing (leverage) to purchase real estate, it may owe Unrelated Business Income Tax (UBIT), even though the IRA itself is tax-advantaged. UBIT is assessed at trust tax rates, which are quite high. This is an important planning consideration often overlooked by SDIRA investors.

Checkbook Control LLC

Some SDIRA investors establish an LLC wholly owned by the IRA (the "Checkbook IRA" structure), giving the IRA owner direct checkbook control over investments without going through the custodian for every transaction. This speeds up deal execution but adds compliance complexity and setup cost. If done incorrectly, it can trigger prohibited transaction rules.

Proceed with Expert Guidance

SDIRAs offer tremendous opportunity but carry significant compliance risk. Before investing your retirement funds in alternative assets, consult with Randall Parker to ensure your strategy is properly structured.

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