How Do I Open Self-Directed Retirement Accounts?

A self-directed IRA allows you to spread out your retirement savings to places other than the usual stock or mutual fund options. Examples include certain real estate, limited liability companies, private stock offerings and some gold coins. To take advantage of a self-directed individual retirement account, you need to select a trustee who is willing to handle such investments.

Roth or Traditional

You must decide between a traditional or Roth self-directed IRA. All distributions from a Roth IRA are tax-free when withdrawn at retirement, as long as the account has been open at least five years. Distributions from a traditional IRA are taxable, but all contributions you make to the account could be tax deductible, depending on your income.


You will need to find a trustee to oversee your IRA. While banks and brokerage firms provide these services for products they offer, you need a trustee who will provide the extra services required for a self-directed account. The trustee will make purchases of your alternative investments and hold these investments in its name for your account. The trustee may provide other services related to your holdings, such as real estate management services or storage for gold coins.

Initial Funding

Self-directed IRAs typically require significant funding to buy investments such as real estate and private stocks. The most common source of this money is an existing IRA account. A self-directed IRA custodian can initiate a trustee-to-trustee transfer of funds from an existing IRA or a 401(k) from a previous employer, with no tax ramifications for the transfer. If you are funding a Roth self-directed IRA with funds from a traditional IRA, you will need to pay taxes at your regular income tax rate on the funds as a conversion.


The fees for a self-directed IRA can be significant compared with those of a bank, mutual fund or brokerage IRA account, which can run about $20 a year for administrative costs. The fees for self-directed accounts can range from $200 to more than $2,000 a year, depending on the services offered. The higher costs are mainly because of the extra record keeping and paperwork required to ensure your IRA maintains its tax-advantaged status.

Prohibited Investments

The Internal Revenue Service prohibits owning collectibles in an IRA. This includes stamps, certain coins, artwork and antiques. However, you can invest in gold coins produced by the U.S. Mint, in 1-ounce, one-half ounce, one-quarter ounce and one-tenth ounce sizes. You can also invest in U.S. Mint 1-ounce silver coins. You are also prohibited from investing in property you use, such as a vacation home, even if you rent it most of the time.


Investors with a substantial net worth, often more than $1 million, are better candidates for self-directed IRAs. They should be able to better tolerate the loss that can come from a bad investment. Younger people, who can give their investments more time to grow, are also better suited to this type of account than those who are close to retirement age.