At some stage on your retirement journey, you will find yourself asking, where can I open a self-directed IRA. I know for myself it was many years after I started contributing to an IRA that I even found out such a thing as a self-directed IRA existed.
So what is a self-directed IRA?
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Simply put, most traditional IRAs and Roth IRAs only allow you to invest in a limited number of stocks, bonds, mutual funds, and stock and bond funds. A self-directed IRA opens up a wide range of alternative investments that you can hold in your IRA.
Let’s also remember the distinction, a traditional IRA allows you to invest pre-tax income within certain limits, and then you will pay tax at whatever rate will apply when you withdraw from your account.
The idea being if you get this right, with a traditional IRA your tax rate after retirement, will be lower than when you were earning. Also, your investments will be able to build larger capital positions, because you contribute in pre-tax dollars.
A Roth IRA, in contrast, requires that you make after-tax contributions, while your withdrawals when you retire are not taxed. Again restrictions and limitations apply.
So with a Roth IRA, you are assuming that your tax rate in retirement will be higher than it was when you were working.
What you can do with a self-directed IRA
Even though self-directed IRAs are less well-known than a traditional IRA or a Roth IRA, many of the same rules apply. For example in 2021 the maximum annual contribution to a self-directed IRA is $6,000 or $7,000 for those 50 years and older. Essentially a self-directed IRA allows you to invest in a broad range of alternative investments including,
- Gold, silver, platinum, and palladium provided they meet purity requirements
- Real estate
- Land
- IPOs
- Cryptocurrencies including Bitcoin, Ethereum, etc
- Promissory notes
The kinds of investments that are not allowed are most sorts of collectibles. Also, any kind of transaction that is not an arms-length investment could be disqualified. When either you or a close family member or even one or more of the IRA trustees is the other party, it will be a prohibited transaction as it is regarded as self-dealing.
Limitations also apply on where assets in a self-directed IRA must be held. For example, eligible gold or silver bullion has to be held by an accredited custodian.
What you need to open a self-directed IRA
To open a self-directed IRA you will need to open an account with an accredited company often referred to as either a custodian or trustee. First, check that the company you select covers the kind or kinds of investments you want to make.
Some trustees will cover only precious metals, while others specialize in real estate and yet others will work with you to enable investment in any allowed alternative investment. However, these kinds of – everything goes – self-directed IRA companies may not offer specialized advice.
Do-It-Yourself or Done-For-You
So, on the one hand, there are self-directed IRA companies that provide a no-frills kind of service. If you are that sort of investor, and you know exactly what alternative investments you want and you want to manage all steps of the process, then a generalist kind of self-directed IRA company is probably right for you.
On the other hand, self-directed IRA companies pride themselves on their customer care and service.
What is special about gold and silver self-directed IRAs
Many people approaching retirement, and many who are already retired are concerned about the possible impact of rising inflation and stubbornly low interest rates we’ve become accustomed to in recent years.
Then there are all those risks posed by the massive flows of funds from governments printing money to combat the economic impact of the COVID-19 pandemic. You have to ask yourself, where is all that money going to go? And we can assume that if the Fed persists in keeping interest rates low, inflation is going to be the obvious outcome.
Now, in June 2021, we are already seeing the impact of rising inflation and there are no signs that it will subside of its own accord nor that there will be any concerted effort to push it back down.
These kinds of concerns about the possible effects rising inflation would have on the nest eggs of many retirees and people close to retirement have resulted in a growing interest in diversifying IRAs into gold and silver bullion.
In this economic climate, several self-direct IRA companies specializing in gold and silver bullion services have stepped in to service this need.
Gold and silver self-directed IRAs
Self-directed IRA companies specializing in gold and silver, offer customers a one-stop-shop to set up an IRA where physical gold or silver bullion, owned by you is held in custody on your behalf.
I am using the term one-stop-shop because there are several steps involved in the process of setting up a self-directed IRA for buying physical gold bullion. The steps are:
- setting up the self-directed IRA
- buying gold or silver bullion of the approved grade
- storing the bullion in an approved secure depository
If you are the kind of investor who prefers to Do-It-Yourself, then you can hunt around for a no-frills self-directed IRA trustee, buy your bullion from another provider and then arrange to ship it, with insurance to an approved secure storage facility.
A gold IRA company is going to do all that for you.
What distinguishes one Gold IRA company from another?
There are costs and therefore fees involved in all the processes needed to set up a self-directed IRA. Different gold IRA companies will charge different fees and some will waive certain fees for new clients.
If you are looking for a self-directed IRA company specializing in precious metals you should check what fees you will be charged. You may find that one company will have advantageous rates for small investors while the rates charged by other companies are more favorable for investors with large bullion holdings.
Because of the complexities of investing in precious metals in a self-directed IRA, gold IRA companies also differentiate themselves by providing different levels of educational materials.
The most obvious way a gold IRA company stands out above others is by providing excellent customer service.
Precious metals allowed in self-directed IRAs
In the US the IRS restricts what kinds of precious metals can be held in a self-directed IRA.
- Gold coins minted by the US Treasury in 1 ounce, 1/2 ounce, 1/4 ounce, and 1/10 ounce
- Gold bars 99.5% pure
- Silver bars 99.9% pure
- Platinum and palladium bars 99.95% pure
- Gold coins that meet the purity requirements, e.g. American Eagle bullion or Canadian Maple Leaf
- Silver coins that meet the purity requirements, e.g. American Eagle billion or Canadian Maple Leaf
If in doubt check before you purchase any bullion or coins. Any purchase of non-approved precious metals is treated as a disbursement from your IRA and may have tax consequences.
The top gold IRA companies
Affiliate Disclosure: This article contains affiliate links, if you purchase through a link on this site, I may receive a commission.
Goldco Precious Metals was founded in 2006 and gets top marks for excellent customer service and the extensive, clear, and objective information they provide their clients. Their prices are competitive and they frequently run special offers and discounts for new investors. Goldco also has very comprehensive educational materials and encourages clients to use these resources to become well-informed customers.
Goldco’s relentless focus on excellent customer service has paid off with top-rated reviews at the Better Business Bureau, the Business Consumer Alliance, Trustpilot, and other customer rating sites.
The Patriot Gold Group has been in operation since 1986 as a family-owned and run business. Over the years has built itself an excellent track record. Patriot Gold’s prices are also competitive. One advantage of the Patriot Gold Group is that they can pass on investor-direct prices to their customers.
The Patriot Gold Group scores high marks with client reviews on customer rating sites including the Better Business Bureau, and others.
Advantage Gold gets good ratings for first-time buyers by offering low fees, low minimums, and extensive educational materials targeted at first-time buyers. This approach has earned Advantage Gold excellent reviews and ratings with the Better Business Bureau and other rating agencies.
Some top general self-directed IRA providers
If you are looking to make all or any kind of alternative investment, the Equity Trust could be a good choice. Equity Trust covers all kinds of alternative investments approved for self-directed IRAs. These include; real estate, precious metals, cryptocurrencies, private equity investments, and many others. Equity Trust prides itself on its many specialists who are ready to help clients with any questions they have.
uDirect IRA Services specializes in real estate though they also provide access to all other kinds of investments allowed with self-directed IRAs. uDirect IRA Services has a checkbook facility giving you direct control over your funds making transactions fast and easy to execute. uDirect IRA Services has an A+ accreditation with the Better Business Bureau.
With IRA Financial you can add any approved investment to one of their self-directed IRAs. The fact is that the IRS audits self-directed IRAs frequently and IRA Financial’s strong suit is protecting its clients when there are IRS audits. IRA Financial has an A+ accreditation with the Better Business Bureau.
Questions and answers
Q. How much does it cost to open a self-directed IRA?
A. To set up a self-directed IRA can cost as little as $0 if a provider is running a special promotion. Self-directed IRA companies charge setup fees, transaction fees, and maintenance fees. You should check all the fee structures of a self-directed IRA provider before deciding to invest with them.
Q. Are self-directed IRAs safe?
A. In a word, yes. In the US a self-directed IRA custodian that is a bank is regulated by the Federal Deposit Insurance Corporation. If a self-directed IRA custodian is not a bank they are regulated by the Internal Revenue Service.
Q. How do you buy gold in a self-directed IRA?
A. Many self-directed IRA providers will allow you to buy gold of the required fineness. If you plan to keep a large part of your holdings in gold or silver as protection against inflation then it is best to open an account with a self-directed IRA provider that specializes in gold and precious metals.
Single-page summary
Here is a single-page PDF summary of opening a self-directed IRA.
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Disclaimer: I am not a financial professional. All the information on this website and in this article is for information purposes only and should not be taken as personalized investment advice, good or bad. You should check with your financial advisor before making any investment decisions to ensure they are suitable for you.
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Hi,
Thank u for this great bit of information about Gold and silver self-directed IRAs. I couldn’t find it anywhere and I spent a good deal of time searching for it. Thankfully, you have it all written in a way that a layman can understand.
I’m glad to hear that gold can be bought and the only requirement is the quality of that metal.
Regards,
Aps
Hi and thanks for the comment. Best regards, Andy
I have only heard or Roth and Traditional IRAs before reading your article. This is pretty interesting, is this something you would be able to roll a Roth or Traditional IRA into? and does it still have the same contribution limits?
Also are you able to hold any cryptocurrency in this type of IRA?
Thanks for the information cant wait to hear your responses.
Hi and thanks for the comment. To answer your questions:
Yes, you can rollover traditional IRAs and Roth IRAs into self-directed IRAs.
Self-directed IRAs have the same contribution limits as traditional and Roth IRAs.
You can hold any cryptocurrency in a self-directed IRA as long as the transaction is not self-dealing. In other words, as long as you buy the cryptocurrencies through an arms-length transaction. If you buy through a regulated exchange as an open market transaction then that should be fine. From what I can tell those self-directed IRA providers who facilitate holdings in cryptocurrencies tend to partner with regulated cryptocurrency exchanges so you should be OK on that front.
Best regards, Andy
This is very difficult topic for me to comprehend always. Your article has made it a little simpler for me. It’s clear you’re recommending a self directed IRA. I would like to pay zero tax through real estate and business and not worry about this IRA. Please help me understand if that approach is even possible
Hi and thanks for the question. In the US you can make pre-tax payments into a traditional self-directed IRA. If you opt for a self-directed IRA custodian that supports and even specializes in real estate then you will be able to invest funds that you have in your self-directed IRA in real estate projects, such as individual residential properties, but there are some restrictions that apply. The properties have to be for investment purposes only. You or your family can’t live in them. Also, you cannot buy or sell the property to anyone in your close family. There are risks involved. Effectively you and the self-directed IRA are different entities for tax purposes. In 2021 you can only make $6,000 if you are under 50 or $7,000 per year in contributions if you are over 50. All expenses on the property have to be met from the IRA. So as long as the property or properties are making money, typically rental income, and don’t require massive injections of cash that exceed what you have in your self-directed IRA this can work out for you. There is much more to this so if you are considering starting a self-directed IRA in order to invest in real estate, you will need to do much more research. Good luck and best regards, Andy
Greetings! I went through your article about the self-directed IRA. This is an informative post indeed. I think the idea of “do it yourself” is much better than waiting for someone to run your own investments. Here, you are your own boss and this gives your freedom over your investments and your overall financial life. Thanks for sharing this amazing piece of writing with us.
Hi and thanks for the comment. Investment is a very personal area and one of the most important elements of success in investing is adopting an approach that works for you and that you will stick with. If you are someone who prefers to do-it-yourself then this probably is the best approach for you. Good luck, best regards, Andy
Thanks for this informative piece. Not really conversant with all these financial stuff but I try to learn a lot since we’ll all be retired one day and need income to cover our expenses. So this self direct IRA is some form of 401k right? Seems to offer more benefits though as you can get professional advice from these companies you mention and a wide variety of investment classes. Definitely worth checking out further.
Hi and thanks for the comment. If you have a 401k with your employer and you want to open a self-directed IRA you would have to set that up separately. You can also roll over any 401k or existing Traditional or Roth IRA into a self-directed IRA. Best regards, Andy
I had never heard of these self directed IRAs but everything you wrote made it a bit easier to understand. I guess there are many people that would be interested and really benefit of this types of IRA so kudos to you for providing all the basic information. I am sure there is much more for someone really interested into this but your article really provide some clear starting point for anyone that don’t know what they should do.
Hi and thanks for the comment. Self-directed IRAs are a big topic and anyone interested in starting one will likely have to do a fair bit of research to be sure they find the most suitable option. On the other hand, if they have a very clear objective at the outset it should prove a lot easier. For example, if their intent is to operate part of their IRA funds to buy and flip rental properties, then that will narrow down their search. Even more so, if they have decided that they want to hold precious metals as an investment hedge against inflation, then that is even easier to arrange. Best regards, Andy
A self-directed IRA is a financial way to bring out our future and get our minds pumped for a long-term investment. I value your website. Self-directed IRAs can be a major asset giving the investor access to a broad range of alternative investments. I share your interest that having a clear mission can provide multiple benefits and how your example benefits everyone around the world to start an investment that values your vision.
Hi and thanks for the comment and the positive feedback. Best regards, Andy
This is one topic that I’ve been avoiding researching simply because it’s too overwhelming and there’s so much conflicting information out there. This is an easy to understand break down and actually has helpful information I can follow to get this done and feel better about my investments. thanks, i needed this.
Hi and thanks for the positive comment. I am glad that you found the information easy to understand and I hope usefull. Best regards, Andy
Hi Andy. Thank you for another interesting article. We all need to remember about our future, and we should start saving for our retirement as soon as possible. Yet there are so many options and possibilities that its not always easy to choose best offer. Your post about IRA is great here and will save me lot of research time. I had no idea that there are so many options available and especially investing in cryptocurrencies seems very good idea to increase capital.
Hi Cogito and thanks for the positive feedback. Best regards, Andy
This has been a very informative post. Thank you! I also appreciate that you have given us your affiliate disclaimer. It makes it possible to approach your post with a higher level of trust. To me, honesty is very important! I thought that collectibles were a kind of investment that was allowed. So I am glad I read your post!
Hi and thanks for the comment. Even though collectibles are often good investments, they are not allowed in a self-directed IRA. I guess there could be numerous reasons for that. Reporting the value of a collectible would be tricky and lend itself to all kinds of misuse. The rarer an item may become might mean that its value could increase but it would be hard to set a value to that item without actually putting it up for sale at a public auction. Best regards, Andy
Hi. Thanks for this article. It was a pleasure reading it!
I knew nothing about self-directed IRAs until I found your article. I am constantly looking for new information because I believe that by learning we can achieve so much in our daily lives. Especially, when it comes to investing!
Knowledge is power and we should try to learn something new every day. Thanks for all this useful information!
Best regards,
Dominique
Hi and thanks for the comment. I am glad that you found it interesting. I agree, learning about investing is very important, which is pretty much the main reason for this site. Wishing you all the best, Andy
I had never known about these self-directed IRAs before, yet your article made it more clear. I think many people would be intrigued by the possibilities of this kind of IRA, so all credit to you for giving the essential data. I’m certain there is considerably more to learn on this subject for somebody truly intrigued by these.
Hi and thanks for your comment. Yes, this is a complex subject. Anyone who is really interested would need to thoroughly research for themselves. Best regards, Andy