The SDIRA Playbook: Tax-Free Alternatives Investing

Most Americans don't realize their retirement accounts can hold more than mutual funds. While Fidelity and Schwab limit you to stocks, bonds, and their proprietary products, a Self-Directed IRA opens the door to virtually any investment—including the alternatives that wealthy families have used for generations.

The Basics: What is an SDIRA?

A Self-Directed IRA is simply an IRA with a custodian that allows alternative investments. The same contribution limits, tax advantages, and withdrawal rules apply—you just have more investment options.

There are two main structures:

• Custodian-Directed: The custodian holds assets and processes each transaction. More oversight, less flexibility.
• Checkbook IRA: Your IRA owns an LLC. You manage the LLC with checkbook control. More flexibility, more responsibility.

The Tax Advantage

The math is compelling. Alternative investments often generate higher returns than traditional assets—and those returns compound tax-free in a Roth IRA.

What You Can (and Can't) Invest In

The IRS defines what's prohibited—everything else is fair game.

SDIRA Strategies by Asset Class

Real Estate

The most popular SDIRA investment. Your IRA can own rental properties directly, invest in syndications, or participate in private REITs.

Key consideration: All expenses must come from the IRA, and all income must return to the IRA. You can't use personal funds to pay for repairs or pocket the rent.

Precious & Strategic Metals

Your IRA can hold physical gold, silver, platinum, and strategic metals like gallium and germanium. The metal must be stored at an IRS-approved depository—not your home.

Key consideration: Only certain purity levels qualify. American Eagle coins are allowed; rare collectible coins are not.

Private Equity & Startups

SDIRAs can invest in private companies, venture funds, and pre-IPO shares. Platforms like EquityZen and AngelList support SDIRA investments.

Key consideration: Ensure the investment documents allow IRA ownership. Some funds exclude retirement accounts.

The Prohibited Transaction Trap

The biggest risk with SDIRAs isn't market loss—it's making a prohibited transaction that disqualifies your entire IRA. Common mistakes:

• • Buying property you or family members will use
• • Paying yourself for managing IRA assets
• • Lending IRA funds to yourself or family
• • Using personal funds for IRA property expenses
• • Commingling IRA and personal assets

Violation can result in the entire IRA being distributed and taxed, plus a 10% early withdrawal penalty if under 59½.

Getting Started

Setting up an SDIRA takes 1-2 weeks:

1. 1. Choose a custodian: Compare Rocket Dollar, Alto IRA, and Directed IRA based on your investment plans.
2. 2. Open the account: Complete application and fund via rollover or contribution.
3. 3. Set up checkbook control (optional): If using a Checkbook IRA, form the LLC that your IRA will own.
4. 4. Start investing: Direct your custodian to make investments on behalf of your IRA.