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Self-Directed IRA Myths – What You Should Know

Self-Directed IRA myths

When it comes to investing, there are several Self-Directed IRA myths floating around. In the following, we will share those myths and let you know which ones are false. After all, you can’t trust everything you read on the internet. Except this, of course!

What is a Self-Directed IRA?

For those that don’t know, a Self-Directed IRA is a type of individual retirement account that is completely controlled by the user. There is no custodian or financial institution getting in the way. You are on in total control of the investments you make. A “truly” Self-Directed IRA gives you complete freedom and you never need custodial consent to invest. In fact, with checkbook control, you can simply write a check that’s tied to the account to make you investment, whenever you see fit.

Self-Directed IRA Myths

Let’s talk about some of the most common myths surrounding Self-Directed IRAs:

The Self-Directed IRA is Different than a Regular IRA

It is true that a Self-Directed IRA has many advantages that a regular IRA does not. However, they are essentially the same type of retirement plan. They each must adhere to the rules set forth by the IRS. Contributions limits are the same. Prohibited transactions are also the same. The one key difference is the investment choices you have.

Generally, a regular IRA that is opened at your local bank is limited in investment options. Usually, you are stuck with traditional asset classes, such as stocks, mutual funds and ETFs. On the other hand, a Self-Directed IRA can invest in traditional, as well as alternative, investments. These include real estate, private businesses, cryptocurrencies and precious metals. You will need a special custodian to open a Self-Directed IRA. Which lead us to…

IRA Custodians are All the Same

This Self-Directed IRA myth is completely false. As we just mentioned, where you open up your IRA is the most important step to take. Many large financial institutions, such as Fidelity and Wells Fargo, offer Self-Directed IRAs. However, you still need custodial consent to make an investment. For example, real estate may be an allowable investment, but you must first submit the details to your custodian. This can be a lengthy process. Even if your custodian deem it to be a reasonable investment, your window of opportunity may have closed while waiting.

When you have a passive custodian, such as IRA Financial, there is no waiting for approval. When you see an investment you like, you can act on it as soon as you want. There are no needless delays that might cause you to miss out. Bear in mind, it’s best to work with a qualified financial advisor to make sure the investment is in line with your financial goals.

You Can’t Own Real Estate and Other Assets with Your IRA

False, false false! Real estate is the most popular alternative investment within Self-Directed IRAs. Moreover, there are only a handful of investments prohibited in your IRA:

  • Life insurance
  • Collectibles (such as art)
  • An Investment that involves a disqualified person

To clarify the third point, only the IRA can benefit from any investment. This means you cannot personally benefit from the investment. Further, lineal ascendants and descendants cannot benefit either. This include parents, grandparents, children and their spouses. For example, you can own a rental house in your IRA, but you cannot live there so long as your IRA owns it.

A Self-Directed IRA is Too Complicated to Open

Guess what? Self-Directed IRAs are not difficult to open. If you’ve had problems opening up one, you’re not going to the right place! Since traditional financial institutions make money from the products they offer you, they are not keen on advertising the benefits of the Self-Directed IRA.

IRA Financial can get your Self-Directed IRA up and running in a matter of days. We will continue to monitor the account to make sure it is always IRS-compliant. The best part is that you can do everything from your mobile device with the IRA Financial app!

You Need a Huge IRA to Self-Direct

This is another Self-Directed IRA myth that you can ignore. Just because you don’t have millions of dollars saved in your IRA, doesn’t mean you shouldn’t self-direct. Self-Directed IRAs are not limited to just the wealthy. It may be nice to buy and sell houses with your IRA, but you don’t need to do that right away. Alternative asset investments can help better diversify your holdings. You don’t want everything invested in the stock market. What happened to your savings when the market crashes?

Therefore, broadening your investments is crucial to save for the future. Crowdfunding is a popular choice for those that don’t want to invest large sums of money. In fact, you can even invest in real estate the same way! Don’t let a small account stand in your way.

Self-Directed IRAs Are a Fraud

This Self-Directed IRA myth is actually true to a certain extent. As with any get-rich-quick scheme, there are plenty of people looking to take advantage of you. Always work with trusted experts. IRA Financial’s Self-Directed IRA is always in compliance with all IRS rules. Further, we will never push any type of investment on you. Our only job is to maintain the plan and make sure your IRA does not get disqualified. Any custodian looking to sell you a product is not looking out for you.


Don’t let Self-Directed IRA myths dissuade you from one of the best retirement plan options around. Contact one of our experts with any questions you may have at 800.472.1043. Thanks for reading and Happy Retirement!


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