Self-Directed IRAs

Self-Directed IRAs and Separating Facts from Myths

If you have only heard about Self-Directed IRAs and never looked into them yourself, you should not be surprised to find that there are some myths that pervade. After all, Self-Directed IRAs are not the traditional way most people invest. Most people use company plans like a 401(k) or a traditional plan like a Roth IRA to make their retirement investments. Anything else, they figure, and it becomes sketchy—so they’re willing to accept myths about these IRAs that do not mesh up with reality.

To that end, let’s separate some common Self-Directed IRA myths from the facts by addressing them one-by-one and explaining the facts that you need to know.

Self-Directed IRA Myth: It’s Not Legal!

The facts: Of course, it’s legal to direct your own retirement account. In fact, it’s not only legal, but the IRS is happy to tell retirement investors what not to invest in, rather than what to invest in. That means it’s perfectly acceptable for Self-Directed IRA investors to make investments in real estate, for example, even though you might consider this a “nontraditional” retirement investment. And even this word itself—nontraditional—is packed with myths. Real estate is, in fact, a perfectly traditional investment for preparing oneself for retirement.

Self-Directed IRA Myth: Self-Directed IRAs are Riskier

The facts: All investments have risk, but there’s no rule that says your Self-Directed IRAs have to be invested in risky assets. In fact, you’re free to choose what assets to include in your Self-Directed IRA—that’s the point of self-directing, after all. If you want to build a conservative portfolio with inflation hedges like gold, silver, and real estate, that can be a conservative portfolio. But if you do want to increase your risk and potential gains, there are other asset classes that can be used within a Self-Directed IRA that would, in turn, increase risk exposure. The point is not that Self-Directed IRAs are either one way or the other. The point is that you will get to choose.

Self-Directed IRA Myth: I’ll Have Higher Limits!

The facts: As much as we would like it to be true, there isn’t anything that distinguishes a Self-Directed Roth IRA, for example, from a Roth IRA when it comes to limits. The Self-Directed IRA is not a “secret strategy” to eliminate problems like contribution limits. If you’re looking for the Self-Directed IRA to allow you to directly contribute more to retirement, then you haven’t understood how they work.

But there is something you can do within a Self-Directed IRA that’s worth mentioning: with a Self-Directed IRA, you can use non-recourse loans for something like a real estate purchase. This, in turn, gives you more leverage to make the sorts of investments you want to make.

Self-Directed IRA Myth: You Can Buy Personal Property with a Self-Directed IRA

The facts: This is just wrong, because the IRS prohibits the personal use of something like a real estate purchase within an IRA. An IRA is there for retirement investing and retirement investing only, which is why the IRS is very specific about what it calls “disqualified persons.” For example, if you were to purchase an investment property within an IRA and then use it as a vacation home, you would be using it for the benefit of disqualified persons—i.e., yourself and your family—when it should be generating income as an investment.

Want to know more about how Self-Directed IRAs work? Want to separate more myth from fact? Continue to browse our site here at, or give us a call to learn more about how Self-Directed IRAs work by dialing 866-7500-IRA.

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