What Is the Self-Directed IRA?

A self-directed IRA (SDIRA) is a type of traditional or Roth IRA that allows you to invest in a wider range of assets beyond the stocks, bonds, and mutual funds available in standard retail IRAs. With a self-directed IRA, you can invest in real estate, private businesses, tax liens, precious metals, private loans, and other alternative assets, as long as the IRS permits them. The IRS prohibits certain transactions called prohibited transactions — for example, you can't use your IRA to buy a vacation home you personally use, invest in a business you or certain family members own, or personally guarantee a loan taken by the IRA. Because SDIRAs can invest in businesses or real estate partnerships, UBTI can sometimes be triggered inside the account. A custodian who specializes in alternative investments is required to administer a self-directed IRA, and their fees are typically higher than those of standard IRA custodians.