Comparing self-directed IRAs to traditional IRAs

Self-directed IRAs and traditional IRAs are both tax-advantaged retirement accounts, but they differ primarily in the investment options available. Traditional IRAs typically limit investments to stocks, bonds, mutual funds, and other publicly traded securities. In contrast, self-directed IRAs allow for a much broader range of alternative investments, including:

• Real estate (rental properties, commercial real estate, land)

• Precious metals (gold, silver, platinum)

• Private equity/lending (invest in private companies, mortgages)

• Cryptocurrencies

• Tax liens

• And more

Key Differences

Investment Control: With a self-directed IRA, the account holder has full control over investment decisions and asset selection. Traditional IRAs are managed by the custodian, limiting investment choices.

Diversification: The expanded investment options in self-directed IRAs enable greater portfolio diversification beyond traditional assets.

Complexity: Self-directed IRAs require more active management and due diligence by the account holder compared to traditional IRAs.

Eligibility & Contribution Limits: Both account types follow the same IRS eligibility rules and annual contribution limits based on age and income.

Tax Treatment: Contributions to traditional IRAs are tax-deductible, while Roth IRA contributions are made with after-tax dollars. Qualified withdrawals in retirement are taxed accordingly.

In summary, self-directed IRAs offer more investment flexibility and diversification opportunities but also require greater involvement and responsibility from the account holder. Traditional IRAs provide limited investment options but are generally easier to manage.