The Self-Directed IRA has started to pick up steam with all of the emphasis on being in control of your own portfolio. With a Self-Directed IRA, you are in charge of everything that happens with it. Here are the basics of the Self-Directed IRA and why you might want to consider getting one. 

Self-Directed IRAs

With a Self-Directed IRA, you are getting exactly what it sounds like. You have complete control over the investment decisions within the account. Therefore, if you want to use your funds to buy a hot stock that you have heard about, you are free to do so. Because you are in charge of how well the account does, if it does poorly, there is no one else to blame. This adds a lot of responsibility with the level of investment freedom that you have. 

Types of Investments

With the Self-Directed IRA, there are a lot of potential ways that you could invest your money. You can still buy stocks, bonds and shares in mutual funds, as you can with almost any other type of account. However, with this type of investment, you can also invest in things like private equity, real estate, mortgages, franchises, partnerships, and tax liens. This gives you an unprecedented level of flexibility with your retirement dollars and increases your options dramatically. 

Other Considerations

While you are basically in charge of what goes on with a Self-Directed IRA, there are a few rules that you will have to adhere to. For example, you will still have to have someone else in charge of the money. Therefore, you will have to open an account with a certified retirement broker that offers Self-Directed IRAs. You will not be able simply to keep the money on your own and trade it as you wish without having someone hold the money for you. 

In addition, there are certain activities that are prohibited with this type of account. Certain forms of investment, including life insurance and collectibles, are prohibited by the IRS. 

You can also not use any of your investment funds for personal gain. For example, you can use your funds to invest in real estate. However, you cannot, for example, use the funds to buy a vacation house for your use. If you do and the IRS finds out about it, you will immediately have to pay taxes on the money. 


Contributions to the plan also have some regulations and benefits. For example, there are maximums that you must adhere to when contributing to the plan. As of February 2010, an individual can contribute a maximum of $5000 per year to his or her  IRA. The only exception is if the person is over 50 years old. Then he or she can contribute up to $6000.

The major advantage of this type of account is that your contributions can be tax deductible. If you do not have a 401k with an employer, your entire contribution can be tax deductible. 

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