What Is a Self-Directed IRA (SDIRA)?

"Self-directed IRA" (often shortened to SDIRA) sounds like a special kind of retirement account. It isn't. It's an ordinary individual retirement account (IRA) held by a custodian that is willing to hold assets most brokerage firms won't. A Gold IRA is one example: a self-directed IRA that holds physical precious metals (see What Is a Gold IRA? How Precious Metals IRAs Work). This page covers self-directed IRAs in general.

What is a self-directed IRA?

U.S. securities regulators define it simply. An investor alert published by the SEC, the North American Securities Administrators Association (NASAA) and FINRA says: "A self-directed IRA is an IRA held by a custodian that allows investment in a broader set of assets than most IRA custodians permit" (Investor.gov).

Notice what that definition focuses on: the custodian, not the tax law. A custodian is the bank or other approved firm that holds the account's assets and handles its paperwork. The tax rules for IRAs are in section 408 of the Internal Revenue Code. In our reading, "self-directed" is a label the industry uses for IRAs whose custodian offers a wider menu. It doesn't change which tax rules apply. A self-directed account can be a traditional Gold IRA, a Roth Gold IRA, or another IRA type.

Why your custodian decides what you can buy

The IRS confirms that the law sets only the outer limits. Custodians can be stricter. In its IRA FAQs, the IRS says "IRA trustees are permitted to impose additional restrictions on investments" and gives real estate as an example: "IRA law does not prohibit investing in real estate, but trustees are not required to offer real estate as an option" (IRS IRA FAQs).

So when a typical brokerage IRA offers only stocks, bonds, funds and similar securities, that is the firm's business choice. A self-directed custodian simply makes a different choice. See Gold IRA custodians for what custodians do in a metals account.

What can a self-directed IRA invest in?

The investor alert lists examples. Custodians for self-directed IRAs "may allow investors to invest retirement funds in 'alternative assets' such as real estate, precious metals and other commodities, crypto assets, private placement securities, promissory notes, and tax lien certificates" (Investor.gov).

"May allow" is the key phrase. Each custodian sets its own list of accepted assets. Precious metals add a further layer of rules (covered below), so a custodian that holds real estate might not hold metals, and the reverse.

What a self-directed IRA can't hold

The tax code bars two kinds of investment in any IRA, self-directed or not. The IRS puts it in one line: "The law does not permit IRA funds to be invested in life insurance or collectibles" (IRS IRA FAQs).

The precious metals exception

Metals and coins are collectibles by default. Section 408(m)(1) says an IRA's acquisition of a collectible "shall be treated ... as a distribution from such account in an amount equal to the cost to such account of such collectible" (26 U.S.C. 408).

The IRS lists the exceptions. They include "Certain gold, silver, or platinum coins described in 31 USC Section 5112," coins issued under state law, and "Any gold, silver, platinum, or palladium bullion of a certain fineness if a bank or approved non-bank trustee keeps physical possession of it" (IRS). This exception is what makes Gold IRAs and Silver IRAs possible. The details are on the collectibles rule and who can open a Gold IRA.

Which normal IRA rules still apply?

All of them. A self-directed IRA uses the same contribution limits, the same tax treatment and the same withdrawal rules as any other IRA of its type.

• Contributions. For 2026, the IRA contribution limit is $7,500, and the catch-up limit for people aged 50 and over is $1,100 (IR-2025-111). That limit is shared across all your IRAs, self-directed or not. See contribution limits.
• Early withdrawals. "A 10% additional tax generally applies if you withdraw or use IRA assets before you reach age 59½" (Publication 590-B), unless an exception applies.
• Required minimum distributions (RMDs). Traditional IRA owners generally must start taking distributions by April 1 of the year after they reach their required beginning age, currently age 73. Original Roth IRA owners "don't have to take distributions regardless of your age" (same source). The starting age is different for people who reach age 74 after 2032; see RMDs from a Gold IRA.

An RMD from an account full of real estate or metal bars still has to be met, which can mean selling an asset or taking it out in kind. Plan for that early. See Gold IRA withdrawal rules.

Brokerage IRA vs. self-directed IRA

For metals-specific costs, see custodian fees.

What a self-directed custodian does not do

Some buyers assume the custodian has checked their investment. Regulators warn against that assumption. According to the investor alert, "Self-directed IRA custodians:"

• "DO NOT sell investment products or provide investment advice;"
• "DO NOT evaluate the quality or legitimacy of any investment in the self-directed IRA or its promoters; and"
• "DO NOT verify the accuracy of any financial information that is provided for an investment in the account."

(Investor.gov)

The same alert explains why values on your statement may not mean much: "Alternative investments may be illiquid and difficult to value. As a result, self-directed IRA custodians often list the value of the investment as the original purchase price, the original purchase price plus returns reported by the promoter, or a price provided by the promoter." It adds that these investments "may lack liquidity either because of extended holding periods, restrictions on redemptions, limited markets, or some combination of these factors."

Fraud warning signs

The alert names red flags worth knowing:

• Guarantees. "Claims such as 'risk-free,' 'zero risk,' 'absolutely safe,' and 'guaranteed profit' are hallmarks of fraud."
• Unsolicited pitches. "Use extreme caution before investing in an unsolicited investment offer that promotes the use of a self-directed IRA. Fraudsters may attempt to lure you into transferring money from traditional IRAs and other retirement accounts into new self-directed IRAs."

For metals-specific scams, see Gold IRA scams and warning signs.

Prohibited transactions: the self-dealing rules

The broader the menu, the easier it is to cross a line you didn't know was there. An IRA must be run for your retirement, not for your current benefit or your family's.

The IRS explains that "Prohibited transactions are certain transactions between a retirement plan and a disqualified person." For an IRA, "Disqualified persons include the IRA owner's fiduciary and members of his or her family (spouse, ancestor, lineal descendant, and any spouse of a lineal descendant)" (IRS). The full statutory definition in 26 U.S.C. 4975(e)(2) also reaches certain corporations, partnerships, trusts and estates that are 50 percent or more owned, directly or indirectly, by certain other disqualified persons (such as the IRA owner acting as a fiduciary).

The IRS gives these examples of prohibited transactions with an IRA (IRS):

• borrowing money from it
• selling property to it
• using it as security for a loan
• buying property for personal use (present or future) with IRA funds

The statute is broader. Section 4975(c)(1) covers any direct or indirect "sale or exchange, or leasing, of any property between a plan and a disqualified person," "lending of money or other extension of credit," and "furnishing of goods, services, or facilities" between them, among other things (26 U.S.C. 4975).

Examples

• Your IRA buys a rental house, and your daughter lives in it. Use by a family member is the kind of benefit the rules target.
• You sell gold coins you already own to your IRA. That is a sale of property to the IRA.
• You pledge your IRA's metal as collateral for a personal loan. That uses the IRA as security for a loan.

Whether a specific arrangement crosses the line can depend on the facts. A qualified tax professional or attorney should review anything unusual before you do it.

What happens if you break the rule

The consequence for an IRA is severe. Under 26 U.S.C. 408(e)(2)(A), if the owner or a beneficiary engages in a prohibited transaction during a tax year, "such account ceases to be an individual retirement account as of the first day of such taxable year." The IRS explains the effect: "the account is treated as distributing all its assets to the IRA owner at their fair market values on the first day of the year" (IRS).

That can mean income tax on the account's value above your basis (after-tax money you put in), and the 10% additional tax may also apply if you're under 59½ (Publication 590-B). More detail: prohibited transactions.

Checkbook IRAs, LLCs and home storage

Some providers market a "checkbook IRA." In this setup, the IRA owns a limited liability company (LLC), and the IRA owner manages the LLC and its bank account. The pitch is faster deals and more control.

For precious metals, the Tax Court has addressed this structure. In McNulty v. Commissioner, 157 T.C. No. 10 (2021), the court described an IRA owner who "was the manager of the LLC that her IRA invested in. She directed the LLC to purchase American Eagle (AE) coins and took physical possession of the coins." The court held that she "received taxable distributions from her self-directed IRA equal to the cost of the AE coins upon her receipt of the coins," and stated: "An owner of a self-directed IRA may not take actual and unfettered possession of the IRA assets" (opinion).

This matches the IRS's position that IRA bullion must be "in the physical possession of a bank or an IRS-approved nonbank trustee" (IRS IRA FAQs). See home storage Gold IRAs, checkbook IRA LLCs and the McNulty case.

Can a self-directed IRA owe tax on its income?

Sometimes. An IRA is generally tax-exempt, but certain business income can still be taxed. The IRS instructions for Form 990-T say trustees of IRAs, including traditional, SEP, SIMPLE and Roth IRAs, must file that form when the account has "$1,000 or more of unrelated trade or business gross income" (Instructions for Form 990-T). This mostly comes up with business interests held through a self-directed IRA. Ask the custodian and a tax professional before buying an asset of that kind.

Common mistakes

• Assuming the custodian vetted the deal. Regulators say self-directed custodians don't.
• Trusting the statement value. It may just be the price you paid or a figure from the promoter.
• Mixing personal and IRA use. Living in, borrowing against or personally holding IRA assets can end the IRA's status or trigger a distribution.
• Forgetting liquidity. Hard-to-sell assets can make RMDs and emergencies harder to handle.
• Moving money after a cold call. Unsolicited pitches to roll money into a new self-directed IRA are a listed warning sign.

Related questions

Is a Gold IRA a self-directed IRA?

Yes. A Gold IRA is a self-directed IRA whose custodian accepts precious metals that meet the tax code's exceptions. Bullion must be in the physical possession of a bank or approved non-bank trustee, and in McNulty v. Commissioner the Tax Court held that personally possessing IRA-bought coins was a taxable distribution. See how a Gold IRA works.

Do I need a new account to buy metals or real estate in an IRA?

Usually, yes, if your current custodian doesn't accept those assets. Money is generally moved by a transfer or rollover to a custodian that does.

Does the IRS approve self-directed IRA investments?

No. The IRS sets the tax rules. Self-directed custodians, per the investor alert, don't evaluate an investment's quality or legitimacy, so the checking is up to you and your advisers.

Can I manage a self-directed IRA myself?

You choose the investments. The custodian still holds the assets and handles reporting. As McNulty shows, taking personal possession of IRA metals is treated as a distribution.