Self-directed IRAs may sound intimidating, but if they’re properly understood and managed, they offer great freedom. Below are some of the most frequently asked questions we receive about self-directed IRAs. Let’s begin with the basics.

What is a self-directed IRA?

A self-directed IRA account is an IRA that isn’t limited in terms of investment: funds in these accounts may be invested literally anywhere that is allowed by U.S. law.

The larger institutions that administer most U.S. retirement accounts don’t think it’s a good idea to hold real estate or non-publicly traded assets in retirement plans. This is the primary reason more people do not take advantage of these incredibly useful accounts.

Can I rollover or transfer my existing retirement account to a self-directed IRA?

This depends strongly on your situation, but here are some common examples:

Your Situation: Transfer/Rollover:
I have a 401k or other company plan with a current employer. Not typically. In most instances, your current employer’s plan will make it impossible until you reach retirement age.
I inherited an IRA and keep the account with a brokerage or bank. Yes, you can transfer to a self-directed inherited IRA.
I have a traditional IRA with a bank or brokerage. Yes, you can transfer to a self-directed IRA.
I have a Roth IRA with a bank or brokerage. Yes, you can transfer to a self-directed Roth IRA.
I have a 403(b) account with a former employer. Yes, you can rollover to a self-directed IRA.
I have a 401k account with a former employer. Yes, you can rollover to a self-directed IRA or Roth IRA, depending on the type of existing account.

Where can I invest a self-directed IRA?

Popular types of investments include:

Rental real estate

• Secured loans to others for real estate (trust deed lending)

• Private small business stock or LLC interests

• Precious metals, such as gold or silver

• Cryptocurrency (Bitcoin, etc.)

However, some types of investments are restricted from inclusion in retirement accounts. Examples include:

• Collectibles, such as fine art, stamps, coins, alcoholic beverages, or antiques

• Life insurance

• S corporation stock

• Any investment owned by someone in your immediate family.

What restrictions are there on using a self-directed IRA?

When self-directing your retirement account, you must be aware of the prohibited transaction rules found in IRC 4975. These rules don’t restrict what you can invest in, but rather with whom the account can participate in transactions.

The prohibited transaction rules restrict your retirement account from transactions with someone who is disqualified. Disqualified persons include: The account owner, spouses, children, parents, and certain business partners.

On the other hand, you can use your retirement account to buy a rental property from your cousin, friend, sister, or a random third-party person.

Can I invest my self-directed IRA in a personal business, company, or deal?

No. If your IRA transacts with you personally…