What Can a Self-Directed IRA Invest In?
Real estate, and almost anything adjacent to it.
Physical property. Promissory notes. Private loans you make as the lender. Tax liens and deeds. Private funds and syndications you enter through a subscription agreement. A slice of crypto, if that is part of your plan.
By a wide margin the most common is the simplest one. Four out of five of the clients we set up are buying a rental property.
What follows is what people actually buy, the very short list of what the IRS puts off limits, the rules that decide whether your particular deal works, and the two situations where we tell people this is not for them.
The list is defined by exclusion, which surprises people
Most investors assume there is an approved list somewhere and their job is to find it. There is not.
The tax code takes the opposite approach. It names a small number of things a retirement account cannot hold, and everything else is permitted. The named exclusions are narrow: collectibles, meaning art, antiques, rugs, gems and most coins, and life insurance contracts. S corporation stock is effectively off limits too, because an IRA is not an eligible S corporation shareholder.
That is close to the whole list. Real estate has never been prohibited. Neither has lending money, buying a note, or taking an interest in a private company.
So when your brokerage tells you that you cannot buy a rental in your IRA, that is a statement about their platform, not about the law. They are built to hold publicly traded assets, and a rental house does not fit that machinery. A self directed custodian is one that will hold it.
What people actually buy
In rough order of how often we see it.
Rental property. The bulk of it. Single family homes and small residential, bought to hold and collect rent. This is what most people come for, and there is a full walkthrough of the mechanics in can my IRA buy a rental property.
Private lending. Your IRA is the lender. You make a loan, usually secured by real property, and the interest comes back into the IRA account rather than into your pocket. The note and any security instrument are titled in the name of the entity your IRA owns, never in your own name.
Promissory notes. Buying notes other people originated, whole or in part, including seller financed notes created when a property sold.
Tax liens and deeds. Bought at county sale, held for redemption interest or for the property itself.
Private funds and syndications. Entered through a subscription agreement, where your IRA is the subscriber. Common with real estate funds and private deals that have a minimum you would rather meet with retirement money than personal cash.
Land. Often bought passively and held for appreciation with nothing happening in between.
Private equity and private businesses. Your IRA takes an equity or membership interest in a company that is not publicly traded, anything from a small operating business to a stake alongside other investors in a larger one. The hard limit here is control: it cannot be your own business, a business you control, or one owned by a disqualified person.
Crypto and other digital assets. Usually as a portion of an account rather than the whole thing.
The through line is that most of this is real estate or something built on top of it. That is not a rule, it is just what the demand looks like. People who go to the trouble of moving retirement money out of a brokerage are usually doing it because they already understand property.
The rules are about who, not what
This is the part that decides whether your specific deal works, and it catches people off guard because it has nothing to do with the asset.
The IRS cares about disqualified persons: you, your spouse, your parents and grandparents, your children and grandchildren, and their spouses. Your IRA cannot buy from, sell to, rent to, or pay any of them.
In practice that means you cannot live in a property your IRA owns, cannot rent it to your daughter even at market rent, cannot sell a property you already own into your own IRA, and cannot do the renovation work yourself.
Notice who is not on the list. Siblings, cousins, nieces, nephews, friends and most business partners are fine. The rule runs up and down your direct family line, not sideways.
The smallest version catches the most people. Paying a two hundred dollar repair bill from your personal checking account feels like nothing. It is a prohibited transaction, and there is no simple correction path once it happens.
Who this is not a fit for
Two situations, and we say so on the call rather than after the money moves.
Anyone whose plan requires a prohibited transaction. If you want your IRA to buy the rental you already own, or to buy property from your parents, or to rent to your son, there is no version of this structure that makes that work. Sometimes people arrive hoping a particular provider has a way around it. Nobody does. It is better to hear that in ten minutes than to find out after closing.
Anyone who has never made an investment for themselves before. This one is less obvious and matters just as much. This structure hands you direct control over tax deferred money and assumes you already know how to evaluate a deal, read a contract, and judge a borrower. It does not teach you any of that. If you have never done any of your own investing, learning on retirement funds you cannot easily replace is a hard way to start.
Everyone else is a reasonable fit: people who want control over their own transactions and want retirement dollars working in real estate or something adjacent to it.
What it costs and how long it takes
A licensed self directed custodian holds the account regardless of which structure you choose. That typically runs around $50 to open and about $300 a year.
If you add checkbook control, meaning an LLC or trust your IRA owns with its own bank account, there is a flat one time setup fee. It is not a percentage of your account, there is no per transaction fee, and there is no annual fee to MyDirect IRA.
Most setups run two to four weeks from first conversation to funded. About three weeks is typical, and the variable is almost always how fast your current custodian releases the money rather than anything on this end. Which leads to the single most useful piece of advice here: start before you find the deal, not after.
Where to go from here
Three questions usually come next, and each has its own answer.
Do you need checkbook control at all? It depends on how many times money has to move. A single passive note does not need it. A rental with vendors and deadlines does. That comparison is here: checkbook control vs custodian directed.
If you do, which entity? An LLC and a trust do the same job for the same setup cost. The difference is the annual state fee, which an LLC owes and a trust does not. That is covered in IRA LLC vs IRA Trust.
Who holds the account? Custodians vary more in execution than in service. The questions worth asking are in choosing a checkbook control custodian.
Working out whether it fits
The two questions that determine everything else are how many accounts are funding the purchase and where you are buying. Those answers set the structure, the timeline, and the cost.
A twenty minute call covers both. We have set up 400+ of these over 13+ years, in all 50 states, and part of the job is telling people when it does not fit. If the rules would kill your plan, you will hear that rather than a sales pitch.
If you want the full explanation of the structure itself, start with how a checkbook IRA LLC works.
Ted Erickson is the founder of MyDirect IRA. He has spent 13+ years in the self-directed retirement account industry and has established 400+ checkbook IRA structures for clients in all 50 states. He is a licensed California real estate salesperson and mortgage loan originator.
This information is for educational purposes only and should not be considered tax, legal, or investment advice. Consult your own tax or legal advisor before making any investment or plan-structure decisions.
