How to Open a Self-Directed IRA in 3 Simple Steps

Self-directed IRAs open the door to a wider range of investment opportunities: everything from real estate and private equity to precious metals and more. For those looking to take more control of their retirement investing, understanding how to set up and manage a self-directed IRA can be a helpful first step.

If you’re exploring ways to diversify beyond traditional stocks and bonds, here’s a look at how the process works and what you can expect.

What is a self-directed IRA?

At its core, a self-directed IRA is a retirement account – it could be a Traditional or Roth IRA, for example, but with added flexibility. The key difference lies in the range of investment choices available. A standard IRA might limit you to mutual funds or ETFs, while a self-directed IRA gives you the ability to hold alternative assets such as real estate, cryptocurrency, and more.

That broader access to assets can be appealing to those who want to align their investments with personal interests, specialized knowledge, or long-term goals. Still, this type of account requires a more hands-on approach, so understanding the steps to set up one is essential.

Step 1: Choose a qualified self-directed IRA custodian

The first decision you’ll make is selecting a custodian to hold your account. Self-directed IRAs are required by the IRS to be administered by a qualified custodian – an institution that handles the administrative duties.

When comparing custodians, here are a few factors you could consider:

• Suitability: Look for a provider that specializes in self-directed accounts since many conventional financial institutions are not able to support alternative investments.
• Transparency: Costs can vary depending on the custodian and the investments you choose, so it helps to understand setup fees, transaction fees, and annual maintenance costs.
• Asset support: Not every custodian offers the same range of investment options. If you’re interested in real estate or precious metals, make sure that they are supported.

The custodian won’t give you investment advice, but they’ll play a central role in processing transactions, maintaining records, and reporting to the IRS.

Step 2: Open and fund your account

Once you’ve chosen a custodian, you’ll open your account by submitting an application. From there, you can begin the funding process using one or more of the following methods:

Out-of-pocket contribution

You can contribute new funds directly from your personal income, subject to IRS annual contribution limits. Contributions may be tax-deductible if you’re using a Traditional IRA, depending on your income and participation in a workplace plan.

Transfer

This option allows you to move funds from an existing IRA (Traditional, Roth, SEP, or SIMPLE) to your new self-directed IRA. Since it’s a custodian-to-custodian transfer, there are no tax implications as long as the funds move directly between accounts.

Rollover

If you have a retirement plan from a former employer, such as a 401(k) or 403(b), you can roll those funds into a self-directed IRA. Rollovers must be completed within 60 days to avoid taxes or penalties, unless you choose a direct rollover, where the funds move between institutions without passing through your hands.

Considering a Roth conversion?

If you’re looking to take advantage of tax-free growth potential, you might explore converting a Traditional IRA into a Roth IRA. This is known as a Roth conversion, and it involves paying income taxes on the amount converted in the year of the transfer.

While this creates a current tax liability, it allows your investments to grow tax-free moving forward, assuming certain conditions are met. Roth conversions can be especially useful if you expect your income or tax rate to be higher in retirement.

Step 3: Select and direct your IRA investments

With your account funded, you’re ready to begin choosing your investments. This is where self-directed IRAs really stand apart—because the range of asset types is much broader than what’s available in standard retirement accounts.

Some of the alternative assets you might explore include:

• Residential or commercial real estate
• Precious metals
• Private equity
• Cryptocurrency
• Notes and other private lending

You direct the investment decisions, while the custodian handles the processing and documentation. That said, it’s your responsibility to ensure that none of your IRA investments constitute a prohibited transaction as defined by the IRS.

Doing your research, asking questions, and working with your tax or financial advisor when needed can help you avoid missteps while building a diversified portfolio that reflects your goals.

Opening a self-directed IRA with Equity Trust

If you’re ready to take the next step, opening a self-directed IRA with Equity Trust gives you access to a platform built specifically for alternative investing.

When you open an account, you’ll gain access to a range of tools and support designed to simplify and enhance your experience:

• myEQUITY: Our secure, 24/7 online account management system for managing your account, submitting investment instructions, tracking asset performance, and accessing tax documents.
• WealthBridge: A portal within myEQUITY that allows account holders to directly connect their IRA to integrated third-party investment platforms, streamlining the process of accessing and investing in private offerings.
• Investment District: An online marketplace where investors can explore potential investment opportunities in areas like real estate, private lending, startups, and more.

You don’t have to give up investing in traditional assets, or manage multiple IRAs, to take advantage of alternatives. With the Equity Universal IRA, you can hold both types of assets in a single IRA.

This streamlined structure allows you to manage everything – from stocks and mutual funds to real estate and private equity – in one place, giving you more flexibility and simplicity as you build your retirement portfolio.

Whether you’re investing in real estate, exploring private placements, or considering other non-traditional assets, Equity Trust offers the infrastructure, education, and support to help you get started with confidence.

Is a self-directed IRA right for you?

Self-directed IRAs offer a level of control and diversification that many investors find appealing, especially those looking to move beyond traditional markets. By choosing the right custodian, funding your account thoughtfully, and selecting investments that align with your long-term goals, you can create a retirement portfolio that reflects your personal vision.

Ready to explore your options? You can learn more about how a self-directed IRA works and what it takes to get started. Set up a call with an IRA Counselor today.