self-directed IRA FAQs


In working with many clients over the years, we have heard a lot of the same questions asked about Self-Directed IRAs. We are always happy to answer questions related to the administration of your account, and it’s our goal to make sure someone at
our offices answers the phone when you call. 

In this post, we have compiled some of these frequently asked questions and provided answers. Starting with the most basic question, “What is a Self-Directed IRA?”

A Self-Directed IRA is a retirement account that allows you to invest in the full breadth of what the IRS allows your IRA to invest in.  Most custodians limit you to stocks, bonds, mutual funds and Certificates of Deposit (CDs).  That is a small fraction of the assets you can invest in.  The most common types of investments are real estate, private companies, lending money, and precious metals. You can also invest in livestock, tax liens, foreign currency and much more!  

Self-Directed IRAs put you in the driver’s seat and let you invest in what you know and what you are comfortable with.  You also benefit from the tax advantages of retirement accounts. You choose the investments and we work with you to facilitate your investment purchases and process the transactions within your account. 

Which questions about Self-Directed IRAs do you have?

Here are several common questions we often hear and answers to those questions. If you have additional questions that we can answer, please let us know anytime!

What types of IRA accounts can be self-directed?  All IRAs can be self-directed.  Traditional and Roth IRAs are the most common types of retirement accounts, but Simplified Employee Pension (SEP) IRAs and SIMPLE IRAs can be self-directed.  Health Savings Accounts (HSAs)  and Coverdell Education Savings Accounts, while not IRAs, can be self-directed as well.

How do I open a Self-Directed IRA account? At IRA Innovations, our process is simple. You can visit our retirement plans section and choose the right IRA for you. Download the new account application that is found on our Form Center page.  Here are additional details about the process:

  • Open and Fund an Account – To open an account, complete our EZ application.  Once you have completed your application, you will fund your account by either transferring or rolling over funds from an existing IRA,  a former 401(k) plan, or by making a contribution to your new account. The setup of an IRA takes about one day. A transfer or a rollover may take from two weeks to 30 days, depending on the source of the funds or assets being transferred or rolled over. Cash contributions are immediately credited to your account.
  • Select an Investment – Next, you decide on the type of investment you want to make with your account. With a Self-Directed IRA, you choose your own investments. For an overview of investments allowed by the IRS, please visit our investments section.
  • Purchase an Investment  – Once you have chosen your asset, you will direct us on the purchase of your investment choice for your IRA by completing a Buy Direction Letter, located in the Form Center of our website. We’ll show you everything, including how to title the investment in the IRA’s name.

Why do people choose to Self-Direct their IRA?  Because they are in control of their investment.  From novice investors to experienced investors, Self-Directed IRAs allow you to decide what is right for you!  They provide a great diversification strategy by allowing you to invest in the full range of assets allowed by the IRS. This option is perfect for those who would like to have complete control over selecting and directing their investments.

How much do I need to start a new Self-Directed IRA? There is no minimum, but the amount you should start with depends on the nature of the deal or investment you plan to make. For example, if you invest in a real estate property to refurbish and sell, you will need to make sure you have enough cash in your Self-Directed IRA to purchase your investment and pay for any repairs, improvements and any other expenses related to the property.  If you are wholesaling properties, you can probably start with your annual contribution.  If you have someone looking to borrow money, any amount will do.  In the case of a cash contribution, you will need to check the contribution limits for that IRA account type. IRA Innovations is happy to answer questions related to these details.

What’s the difference between a Self-Directed IRA and those that are not self-directed? There is no difference.  An IRA is an IRA.  What most custodians offer limits you to stocks, bonds, mutual funds and CDs. Self-Directed IRAs allow you to invest in ANYTHING the IRS says is OK.  There are many alternative investment options to choose from with a Self-Directed IRA.

Are there assets I cannot invest in? There are certain investments that the IRS says cannot be held by IRAs, which include Life Insurance and Collectibles such as: 

  • Artwork
  • Rugs
  • Antiques
  • Any metals except gold, silver, palladium, and platinum bullion
  • Gems
  • Stamps
  • Coins except gold and silver coins minted by the US Treasury Department
  • Alcoholic beverages

What can I invest in? Pretty much everything else! Real estate-related assets, private companies, limited partnerships, lending money with promissory notes, precious metals, and more.

What are prohibited transactions? Your investment decisions are up to you, but there are a few limitations as defined by the IRS, which are known as prohibited transactions. Prohibited transactions involve the improper use of an IRA account by the IRA owner, his or her beneficiary, or any other disqualified person. Examples of prohibited transactions include: you borrowing money from your IRA; selling, exchanging, or leasing property between disqualified persons and your IRA; receiving compensation for managing property held by the IRA; and buying property for personal use with your Self-Directed IRA. 

Is it possible to partner with other funds or people to make investments? Yes, this is called partnering. You may partner your Self-Directed IRA with another funding source. This might mean partnering your IRA with your own non-IRA funds, your spouse’s IRA, or another person’s IRA or any other non-disqualified entity.  There are options your Self-Directed IRA can take to partner with other investors and other IRAs to purchase an asset. 

I have an old 401(k) from a previous employer. Can I roll that over into a Self-Directed IRA? Yes! If you are no longer an active employee, you can rollover the money from your previous employer’s plan to a Self-Directed IRA. Read more about how the process works.

What does it mean that IRA Innovations is a Self-Directed IRA custodian? All IRAs, including those that are self- directed, must be held by a custodial entity such as a bank, credit union, trust company, or an entity that is licensed and regulated by the IRS as a “non-bank custodian.” We are this custodial entity for Self-Directed IRAs and are a provider of Self-Directed retirement account administration and education. 

Can IRA Innovations help me find good alternative investment options? No.  It is up to you to find the assets you want to invest in and do your due diligence on those assets.  We do not promote any investments or sell any assets. Our role as custodian is to provide education on Self-Directed IRAs and to facilitate your transactions. We do not provide tax, legal, or investment advice and suggest you work with your attorney, CPA or financial advisor when deciding on what assets to invest in.  

We hope this helps clear up answers to many of the basic questions you might have about Self-Directed IRAs. For additional questions, check out this page of our website that covers many more FAQs. Please set up a free consultation with us or contact us for more information. 

Learn more about the basics of Self-Directed IRAs from IRA Innovations in Birmingham, AL. 

IRA Innovations provides self-directed retirement account administration and education in Birmingham, AL, Tuscaloosa, AL, and Nashville, TN. As the experts when it comes to “alternative” investments including private equities, they can provide the necessary tools and information to get started with a Self-Directed IRA.