If you want to invest in non-traditional assets with your retirement savings, you might find it challenging to do so with IRAs held at brokerages, banks, and other financial firms.
You're likely to be limited to just stocks, bonds, and mutual funds when you have your IRA (individual retirement account) with these institutions.
A self-directed IRA solves this issue by allowing you to take advantage of certain alternative assets.
What Are Self-Directed IRAs?
A self-directed IRA is simply a kind of retirement account that allows you to invest in a broader selection of asset classes.
A trustee or custodian still administers the IRA, but it is managed directly by the account holder, hence why it is called “self-directed.”
You can either open up a self-directed traditional IRA, in which you make tax-deductible contributions or a self-directed Roth IRA, in which you make tax-free contributions.
Like an IRA that you'd get from a bank or brokerage, you need to follow the eligibility requirements and contribution limits to participate.
For example, in 2022, the maximum contribution limit is $6,000 (or $7,000 if you're 50 years old or older), and you can only withdraw funds once you reach 59 and a half years old.