A Self-Directed Individual Retirement Account (SDIRA) lets you use retirement savings to invest in assets like real estate, private companies, and precious metals, but it comes with strict IRS rules, fees, and oversight requirements that reward experienced, hands-on investors who understand alternative assets and are prepared to manage more paperwork and risk.

What is a Self-Directed Individual Retirement Account (SDIRA)?

An SDIRA is an IRA administered by a specialized custodian that allows a broader menu of investments, such as real estate, private placements, and other nontraditional assets, within the same basic tax framework as traditional and Roth IRAs. The key difference is not in the tax rules, but in the range of assets the custodian will hold and the investor’s responsibility for sourcing and evaluating each deal.

Like a traditional IRA, a self-directed traditional IRA offers tax-deductible contributions for qualifying taxpayers and tax-deferred growth, while a self-directed Roth IRA uses after-tax contributions and can offer tax-free qualified withdrawals. SDIRAs still follow the same IRS rules on contribution limits, income-based Roth eligibility, and required minimum distributions; only the investment menu changes.

Common Investments Allowed in an SDIRA

Self-directed custodians can hold many IRS-permitted assets, subject to their own internal policies. Below are common examples.

Real estate

Direct ownership of rental homes, multifamily buildings, commercial property, or raw land held in the IRA’s name.
Pros: Potential rental income and appreciation inside a tax-advantaged account; tangible asset that many investors understand.
Cons: Illiquidity, property management demands, and risk of prohibited self-dealing if you or family members personally use or service the property.

Private equity and private placements

Ownership in private companies, startups, limited partnerships, or Reg D offerings through the SDIRA.
Pros: Access to higher-growth, early-stage or niche opportunities not traded on public markets.
Cons: High loss risk, limited disclosure, long holding periods, and valuation challenges for reporting and fees.

Precious metals

Certain gold, silver, platinum, and palladium bullion or coins that meet IRS fineness standards, held at an approved depository, are allowed.
Pros: Potential hedge against inflation and currency risk; portfolio diversification.
Cons: Storage and custodian fees, no yield, and risk of scams or noncompliant products marketed to retirement savers.

Promissory notes and private lending

Secured or unsecured notes, hard-money loans, or other private lending arrangements funded by the SDIRA.
Pros: Custom terms and interest rates; ability to specialize in lending niches like real estate rehab loans.
Cons: Default risk, documentation complexity, and possible unrelated business taxable income if structured as an active lending trade.

LLCs and “checkbook control” structures

Some investors create an IRA-owned LLC that gives the account indirect “checkbook” access to invest quickly in real estate or other assets.
Pros: Faster deal execution and consolidated administration when done correctly.
Cons: Higher audit risk, more complex compliance, and greater chance of prohibited transactions if records and boundaries are sloppy.

Investments Not Allowed / Prohibited Transactions

The tax code bans certain IRA investments, including collectibles such as artwork, rugs, antiques, most coins, alcoholic beverages, and life insurance contracts. In addition, using IRA assets in certain ways can trigger prohibited transactions, which may disqualify the entire account.

A prohibited transaction generally occurs when the IRA engages in self-dealing, extends credit, or provides personal benefit to a “disqualified person,” such as the account owner, spouse, lineal ancestors or descendants, and entities they control. Examples include living in a property owned by your IRA, personally fixing that property for free, or having your IRA buy from or sell to your own company. The IRS explains these rules and examples in its prohibited transaction guidance for retirement plans.

How to Open and Fund an SDIRA (Step-by-Step)

Opening an SDIRA typically involves a specialized custodian or trust company that handles alternative assets. The overall process often runs from a few days to several weeks, depending on funding and the complexity of your first deal.

Choose a custodian

Compare different SDIRA custodians’ asset menus, experience with your target investments, fee schedules (flat versus asset-based), and service model.
Many firms charge a setup fee plus annual account and asset fees that can range from under 200 dollars to several thousand dollars, depending on size and complexity.

Complete the account packet

Fill out the application with your personal information, beneficiary designations, and account type (traditional or Roth SDIRA).
Expect to sign custodial agreements and disclosures about prohibited transactions, fees, and investment responsibilities.

Fund via transfer or rollover

You can fund an SDIRA with new annual contributions up to IRS limits or by transferring or rolling over assets from existing IRAs or eligible employer plans.
Direct trustee-to-trustee transfers usually take 5–15 business days, while rollovers from employer plans can take longer depending on the prior plan’s process.

Make your first investment

After funding, you submit a purchase authorization or direction of investment form to the custodian with documents like purchase contracts, operating agreements, or subscription documents.
A practical checklist often includes: clear titling in the IRA’s name, third-party valuation support if needed, verification that no disqualified persons are involved, and an estimate of cash needed for expenses.

Setup Checklist:

Review custodian fees and supported assets.
Gather ID, SSN, and beneficiary details.
Sign all forms digitally or by mail.
Confirm account type matches your tax strategy.
Contact current custodian for transfer/rollover forms.
Specify direct transfer to avoid 60-day rule.
Provide new custodian’s wiring instructions.
Prepare buy direction letter with asset details.
Verify IRA titling on all documents.

Common Timelines: Full setup and funding ready in 1-4 weeks for straightforward transfers; checkbook LLC structures may add 1-2 weeks for trust and bank setup.

Taxes, Withdrawals, and Contribution Rules for SDIRAs

SDIRAs follow the same contribution limits as other IRAs: for 2025, the total contribution cap for all your IRAs combined is 7,000 dollars, or 8,000 dollars if you are age 50 or older. Income limits still apply to Roth contributions, and deduction limits apply to traditional IRA contributions when you or a spouse are covered by a workplace plan.

Early withdrawals from an SDIRA before age 59½ are generally taxable (for traditional accounts) and may incur a 10 percent additional tax unless an exception applies, as explained in IRS Publication 590-B. Required minimum distributions still apply to traditional SDIRAs starting at the applicable RMD age, and illiquid assets can complicate satisfying those RMDs. Certain SDIRA investments that use debt or are operated as an active business can create unrelated business taxable income (UBTI), which is reported and taxed at the IRA level.

Risks, Fees, and Considerations

SDIRAs shift more responsibility to the account owner, including due diligence on deals, ongoing monitoring of assets, and strict recordkeeping to avoid prohibited transactions. Fraud risk is higher in alternative investments, so investors must vet sponsors and promoters carefully and be wary of high-pressure pitches targeting retirement accounts.

Fees can be meaningfully higher than those in standard brokerage IRAs, especially when custodians charge per-asset administration fees or asset-based valuation fees. For example, some SDIRA providers charge around 199 dollars per year for one asset and more for multiple assets, while others may charge 350 dollars per alternative asset annually for oversight and compliance.

SDIRA Use Cases: Who Should Consider One?

SDIRAs tend to fit investors who already possess deep experience in a niche such as real estate, private credit, or private equity and want to place part of that strategy in a tax-advantaged account. Real estate investors, business owners, and accredited investors who can analyze illiquid, complex deals often find SDIRAs useful for diversifying beyond public stocks and bonds.

On the other hand, investors who prefer simple, low-cost index funds or who are new to alternative assets may be better served with traditional or Roth IRAs at mainstream brokerages. Anyone uncomfortable with extra paperwork, higher fees, and strict prohibited transaction rules should think carefully before shifting large balances into an SDIRA.

Launch Your SDIRA with Nevada Trust Company

At Nevada Trust Company, we have delivered custody and administration for self-directed IRAs since 1995, drawing on Nevada’s strong position in asset protection and retirement planning. We put clients first through dedicated professionals who manage trust operations, asset custody, tax filings, and compliance with IRS rules, all while supporting flexible investments in real estate or private assets.

With a goal-based approach and partnerships with top tax and estate experts, we handle the details so investors focus on opportunities. Contact a trust officer today to open your SDIRA. Start building your alternative asset portfolio with a proven custodian.