Self-Directed IRAs: Save Smartly With Alternative Investments
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Self-Directed IRAs: Save Smartly With Alternative Investments

Self-Directed IRAs: Save Smartly With Alternative Investments

Many well-informed retirement savers are increasingly turning to self-directed IRA (SDIRA) to seek higher returns and allow more diversification in their investment portfolio. This is because SDIRA allows investors to own assets beyond the traditional options – CDs, mutual funds, ETFs, and stocks. By investing in alternative assets, risk-willing investors can potentially earn higher returns and build a significant wealth at retirement.

1. What Is a Self-Directed IRA?

A self-directed IRA is an IRA type similar to traditional or Roth IRA, having the same contribution limits and allowing you to save for retirement on a tax-advantaged basis. However, the difference between self-directed and other IRAs is the freedom to expand your horizons and invest in various types of non-traditional assets.

2. Advantages of Self-Directed IRA

  • Higher growth potential: A self-directed retirement account allows you to invest in different asset classes. This gives you an opportunity to diversify your portfolio and allows more flexibility in the amount of risk you take on, thereby increasing your growth potential to earn higher returns.
  • Take control of your investments: Opening a self-directed IRA gives you an opportunity to put your knowledge and expertise to good use. You have full control to make investment decisions depending on your understanding of growing your retirement savings.
  • Safeguard your wealth from market fluctuations: A self-directed IRA gives you the ability to diversify your portfolio by investing in alternative assets. This can act as a hedge against market fluctuations and volatility.
  • Grow your savings tax-free: A SDIRA allows your money to grow in a tax-deferred or tax-free state, and this can ensure that you have a significant amount of money at retirement.

3. Popular Alternative Investment Options 

While a traditional IRA or Roth IRA have limited investment options such as CDs or mutual funds, an SDIRA can be invested in many other alternative assets, such as:

  1. Real estate
  2. Precious metals
  3. Undeveloped or raw land
  4. Promissory notes
  5. Tax lien certificates
  6. Water rights
  7. Livestock
  8. Mineral rights, energy oil and gas
  9. Entities as start-ups, hedge funds, or land trusts
  10. Secured and unsecured lending
  11. Other investments like- Crypto currency, Limited liable companies, commercial paper, etc.

4. Steps to Set up Self-Directed IRA

You’ll need a custodian or trustee to administer your self-directed IRA account. The steps involved in setting up a self-directed IRA are as follows:

  1. Choose an IRA custodian or trust company
  2. Fund your new IRA
  3. Establish an LLC (limited liability company)
  4. The LLC operating agreement
  5. Establish an LLC bank account
  6. Fund the LLC bank account

Bottom Line

A regular IRA with its range of assets (CDs, REITs, mutual funds and ETFs) available is probably a sufficient saving vehicle for most people. If you are a savvy investor, wanting more investment diversity, then self-directed IRA can be an interesting endeavour for you. You can use your knowledge and expertise to increase the growth potential while simultaneously enjoying the tax benefits. However, ensure that you follow all the rules.

About the author:

Rick Pendykoski is the owner of Self Directed Retirement Plans LLC, a retirement planning firm based in Goodyear, AZ. He regularly writes for blogs at MoneyForLunch, Biggerpocket, SocialMediaToday, NuWireInvestor & his own blog for Self Directed Retirement Plans. If you need help and guidance with traditional or alternative investments, email him at or visit

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