A self-directed IRA (SDIRA) allows you to invest retirement funds in assets beyond the traditional stocks, bonds, and mutual funds. Real estate, private lending, precious metals, private equity — all possible inside an IRA with tax-advantaged treatment. The rules are complex, and violations are catastrophic.
What a SDIRA can hold
- Rental real estate
- Private mortgages (act as the lender)
- Tax liens
- Private company stock (not publicly traded)
- Limited partnerships and LLCs
- Precious metals (IRS-approved coins and bullion only)
- Cryptocurrencies (with a qualified custodian)
What a SDIRA cannot hold (prohibited transactions)
- Collectibles (art, antiques, wine, rugs)
- Life insurance contracts
- S-corporation stock
- Transactions with "disqualified persons" (you, spouse, parents, children, their spouses)
The prohibited transaction catastrophe
If you use your SDIRA to purchase a property and then stay there for one night, personally repair it, or have a disqualified person live in it — the ENTIRE IRA is immediately distributed and treated as taxable income, plus a 10% penalty if under 59½. The IRS does not forgive accidental violations. On a $500,000 IRA: $110,000–$185,000 in immediate taxes and penalties.
The SDIRA for real estate: is it worth it?
Tax-free or tax-deferred rental income is powerful. But: property management must be done by third parties (you can't personally manage SDIRA-owned property), all expenses must be paid by the IRA (not your personal accounts), and financing requires non-recourse loans. The complexity is real. Many real estate investors prefer taxable accounts with depreciation deductions over SDIRA complexity.
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