Investing With a Self-Directed IRA

Control your destiny with a self-directed IRA.

Elizabeth Carlassare
3-minute read
Episode #7

Today, I’m going to be talking about something really cool: a self-directed IRA.

Investing with Your IRA

Did you know that the IRS actually allows you to invest in just about any type of asset with your IRA funds? In fact, there are only three types of investments the IRS excludes from an IRA:

  • Collectibles (for example, art, antiques, jewelry, or coins other than U.S. gold coins)

  • Life insurance

  • S corporations

When I first found out it was possible to invest in things other than stocks, bonds, and mutual funds with an IRA, I wondered why it was I hadn’t ever heard about it earlier. I’d been contributing to an IRA for many years, yet I never knew I could make all types of investments with my IRA money except for those three excluded things. I mean, gosh, if I could invest in real estate or a privately held business, for example, with IRA funds (or better yet, Roth IRA funds) that would be pretty neat.

Can an IRA Custodian Help You with Other Investments?

The reason you rarely hear that it’s possible is that most IRA custodians are traditional banks or brokerages and they offer stocks and mutual funds. After I heard it was possible to invest in other types of assets, just for kicks, I called up Fidelity (who happened to be my IRA custodian) and said, “I’d like to invest in real estate with my IRA money. What do I need to do?”

Well, that retirement advisor sure was wondering what planet I was from. But he was very helpful nonetheless, and pointed me to some real estate-related mutual funds. He was unaware that it was possible to purchase real estate with an IRA, which is not at all surprising, because, it isn’t possible with traditional banks and brokerages.

The Self-Directed IRA

To invest in other types of assets, you need to open what’s called a “self-directed IRA” with a custodian that allows you to invest in the full range of asset types allowed by the IRS. With a self-directed IRA, you can invest in real estate and privately held businesses, make secured loans (such as a mortgage), make unsecured loans, and also invest in traditional assets such as stocks and mutual funds. With real estate bought by a self-directed IRA, any income and capital gains grow tax-deferred in the case of traditional IRA or tax-free in the case of a Roth. Pretty cool!

Leveraging Within an IRA

In the last episode, I talked about the concept of leverage. And, it is possible to buy property with leverage in your IRA: there are some lenders who will lend on real estate purchased by an IRA. However, leveraging within an IRA can result in a special kind of tax on the income and capital gains from the leveraged portion of the investment. In most cases, this tax is higher than what you would pay if you bought and financed a property personally rather than through your IRA. But it’s good to know that it is possible to use leverage when buying real estate with an IRA.

For those of you who might be interested in diversifying your IRA investments beyond stocks, bonds, and mutual funds, you might want to look into a self-directed IRA to see if it’s right for you. Links to self-directed IRA custodians and an IRA lender are provided at the bottom of this page.

As always, everyone’s situation is different so it’s a good idea to consult your tax or financial advisor.


Today, we have another book giveaway. And the winner is Mike from the “Let’s Speak Italian podcast.” Congratulations, Mike! You’ve won a copy of IRA Wealth by Patrick Rice, a book on investing using a self-directed IRA. Please check your email for instructions.

Cha-ching! That's all for now, courtesy of Money Girl, your guide to a richer life.

If you have a question or comment, email it to money@quickanddirtytips.com.


Self-directed solo IRA custodians

Self-directed IRA mortgage lender