5 Solo 401(k) Investment Options Smart Business Owners Use in 2026
Are you tired of watching your Solo 401(k) sit idle in the same mutual funds and ETFs year after year? Many business owners do not realize their retirement plans can work much harder for them. Unlike traditional employer-sponsored 401(k) plans, Solo 401(k)s offer remarkable flexibility. Beyond typical stock market investments, your retirement funds can be directed into assets that match your expertise, risk tolerance, and long-term goals.
Smart entrepreneurs are increasingly diversifying their retirement portfolios with alternative investments that traditional accounts simply do not allow. The right Solo 401(k) structure puts you firmly in control of your retirement destiny.
This guide explores five powerful investment strategies that savvy business owners are leveraging in 2026: real estate, private equity, cryptocurrency, hard money lending, and precious metals. We will also touch on Roth contributions and participant loans as essential tools for tax planning and access to capital.
2026 Solo 401(k) Contribution Limits
Before diving into investment options, it is important to understand the official IRS contribution limits for Solo 401(k) plans in 2026.
Employee Elective Deferrals
- Participants under age 50 can contribute up to $24,500 as an employee.
- Participants age 50 or older can make an $8,000 catch-up contribution, for a total of $32,500.
- Participants age 60 to 63 may be eligible for a higher catch-up of $11,250, bringing total employee deferrals to $35,750.
Combined Employee and Employer Contributions
- The total limit from employee deferrals and employer profit-sharing is $72,000 for 2026.
- Catch-up contributions do not count toward this limit, so older savers can potentially contribute more than $80,000 when catch-ups are included.
These high contribution limits make Solo 401(k)s one of the most powerful tools for building wealth for self-employed business owners.
1. Self-Directed Real Estate Investments
Real estate is one of the most powerful investment options available in a Solo 401(k). Property investments offer tangible assets with distinctive tax advantages that are not available through traditional retirement accounts. Many business owners gravitate toward real estate because it provides both income potential and long-term appreciation.
Benefits
- Tax-deferred growth in a Traditional Solo 401(k) or tax-free growth in a Roth Solo 401(k).
- Historical U.S. returns on real estate investments range from 9 to 11 percent annually.
- Solo 401(k)s are exempt from Unrelated Business Taxable Income (UBTI) on real estate loans, unlike IRAs, under IRC Section 514(c)(9).
How to Invest
- Open a Solo 401(k) that explicitly allows real estate holdings.
- Make purchase offers in the name of the plan, not your personal name.
- Pay all costs, including deposits, from the Solo 401(k).
- Fund purchases through contributions, transfers, or rollovers.
- Consider non-recourse financing if additional capital is needed.
- Sign documents as the trustee, providing the plan’s trust agreement at closing.
- Ensure all rental income flows directly back to your Solo 401(k).
IRS Compliance Rules
- No personal use by you, your family, or disqualified persons.
- All expenses must come from Solo 401(k) funds.
- You cannot personally perform maintenance or repairs.
- You and related businesses cannot receive commissions or benefits.
2. Private Equity and Startups
Private equity investments allow Solo 401(k) investors to access growth opportunities unavailable in public markets. Historically, private equity has returned 13.1 percent annually over 25 years, compared to just 8.6 percent for public equities.
Why Private Equity Fits Solo 401(k) Strategies
- Access to over 19,000 private companies with revenues exceeding $100 million compared to roughly 2,790 publicly traded equivalents.
- Less daily volatility due to quarterly valuations, creating steadier performance for long-term planning.
- Provides high-growth potential and portfolio diversification beyond traditional stocks and bonds.
How to Access Private Equity
- Ensure your plan allows alternative investments.
- Review offering documents, including private placement memorandums and subscription agreements.
- List your Solo 401(k) trust as the investor.
- Use the plan’s EIN on all documentation.
- Wire funds directly from your Solo 401(k).
Risks and Compliance
- Investments typically lock capital for 7–10 years.
- High fees, often 2 percent management plus 20 percent of profits.
- Prohibited transactions: you cannot invest in your own business or companies owned by close relatives.
Consult a tax professional before investing to avoid prohibited transactions and penalties.
3. Cryptocurrency and Digital Assets
Digital assets have become a mainstream investment class for retirement portfolios. Nearly 25 percent of Americans have owned cryptocurrency at some point, making it a viable option for Solo 401(k) investors seeking diversification.
Benefits
- Low correlation with stocks and bonds, reducing portfolio risk.
- Potential for significant long-term appreciation.
- Recent regulatory changes make including cryptocurrency in retirement accounts more favorable.
How to Invest
- IRAfi Crypto Platform: Offers integrated trading of over 45 cryptocurrencies in a tax-advantaged account.
- Self-Directed IRA with LLC: Provides checkbook control, allowing trading across exchanges or cold wallet storage.
Security and Tax Treatment
- IRS treats cryptocurrency as property. Gains are tax-deferred in Traditional Solo 401(k)s or tax-free in Roth accounts.
- Use cold wallets for offline storage and never share private keys.
4. Hard Money Lending and Private Notes
Hard money lending allows business owners to turn their Solo 401(k) into a private lending machine. Loans backed by assets, typically real estate, can generate higher returns than traditional investments.
Benefits
- Short-term loans often provide higher interest rates.
- You act as the bank, earning interest directly into your account.
Structuring Notes
- Document loan amount, interest, maturity, and default provisions.
- List your Solo 401(k) as the lender.
- Create an amortization schedule and ensure payments flow back into the account.
Compliance and Risk
- Avoid prohibited transactions with disqualified persons.
- Charge reasonable interest rates.
- Consider professional loan servicing for documentation and collections.
5. Precious Metals and Commodities
Physical precious metals offer tangible assets that hedge against inflation and economic volatility.
Benefits
- Gold, silver, platinum, and palladium historically maintain long-term value.
- Non-correlated to stocks and bonds.
- Provide stability during turbulent markets.
IRS-Approved Metals and Storage
- Minimum fineness of 99.5 percent.
- Allowed coins: American Eagle, Canadian Maple Leaf, Australian Kangaroo, Austrian Philharmonic.
- Must be stored with a qualified third-party custodian; home storage is prohibited.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
Roth and Mega Roth Contributions
Roth contributions are not investments themselves, but they are an essential tax strategy in retirement planning.
Roth vs Traditional Solo 401(k)
- Traditional contributions reduce taxable income now, but withdrawals are taxed as ordinary income.
- Roth contributions are made after-tax and grow tax-free, with withdrawals exempt from taxes if qualified.
- 2026 contribution ceiling: up to $72,000 annually for those under 50 and $80,000 for those 50 and older, including catch-ups.
- Roth Solo 401(k)s have no income limitations, unlike Roth IRAs.
Mega Backdoor Roth
- Allows higher Roth contributions by making after-tax contributions and converting them to Roth.
- Solo 401(k)s are exempt from non-discrimination testing, enabling high earners to maximize tax-free growth.
Advantages
- Tax-free growth and withdrawals in retirement.
- Roth 401(k)s are no longer subject to required minimum distributions, allowing indefinite tax-free compounding.
Solo 401(k) Participant Loans
Solo 401(k) plans allow business owners to borrow from their retirement funds without triggering taxes or penalties. This self-lending strategy provides access to capital when needed.
How loans work
- Borrow up to 50 percent of your vested account balance or $50,000, whichever is less.
- Repayment typically occurs over five years with interest paid back into your account.
When to use
- Significant personal expenses such as medical bills or home repairs.
- Business expenses including equipment or expansion costs.
Caution
- Defaulting on a loan triggers taxes and a 10 percent early withdrawal penalty if under age 59½.
- Outstanding balances are due immediately if self-employment ceases.
Conclusion
Solo 401(k)s offer flexibility far beyond traditional accounts. Real estate, private equity, cryptocurrency, hard money lending, and precious metals provide opportunities to build diversified, high-growth portfolios. Roth contributions and participant loans offer additional tax and liquidity strategies.
The right approach combines multiple investment types while remaining fully compliant with IRS rules. Document everything, consult qualified advisors, and take control of your retirement destiny.
Your Solo 401(k) is one of your most powerful wealth-building tools. Ambitious entrepreneurs deserve retirement strategies as dynamic as their businesses.
Which investment option will you explore first?
Are Self-Directed IRAs Subject to ERISA? What Investors Need to Know
Are Self-Directed IRAs Subject to ERISA? Self-Directed IRAs (SDIRAs) have grown in popularity as investors look for ways to move beyond traditional brokerage accounts. The ability to invest in real estate, private equity, cryptocurrency, and other alternative assets has made SDIRAs appealing for anyone seeking greater control and diversification within their retirement portfolio.
Many investors wonder whether SDIRAs are subject to the same rules that govern employer-sponsored retirement plans. Specifically, people ask if SDIRAs fall under the Employee Retirement Income Security Act of 1974, better known as ERISA. Understanding this distinction is important because ERISA imposes strict fiduciary duties, reporting requirements, and investment rules. Fortunately, Self-Directed IRAs operate under a different legal framework.
What Is a Self-Directed IRA?
A Self-Directed IRA is not a separate category under tax law. It is simply a Traditional or Roth IRA held by a custodian that allows investments beyond publicly traded securities. The IRS permits IRAs to hold a wide range of assets, including real estate, private businesses, tax liens, precious metals, and private funds. What sets a SDIRA apart from a traditional brokerage account is the custodian—not the account itself.
Large brokerage firms limit investment options because their business model revolves around stocks, funds, and managed products. A SDIRA custodian allows broader options and facilitates transactions in alternative assets while maintaining the same IRA tax benefits.
Tax Benefits and Diversification Advantages
Investors are drawn to SDIRAs for their tax advantages. Assets inside a Traditional IRA grow tax-deferred, while those in a Roth IRA may grow completely tax-free. This is especially valuable for investments such as real estate, private equity, or startups, where appreciation may be substantial and holding periods long.
Diversification is another key advantage. Relying solely on public markets exposes portfolios to market volatility and systemic risk. Alternative investments often behave differently than stocks, helping investors spread risk across multiple asset classes. SDIRAs also allow investors to put money into assets they understand, such as rental properties, private lending, early-stage companies, and other hard assets that aren’t available on most brokerage platforms.
What Is ERISA?
The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law designed to protect participants in employer-sponsored retirement plans. ERISA establishes standards for plan management, fiduciary responsibility, disclosures, and participant rights.
ERISA applies primarily to:
- 401(k) plans
- Profit-sharing plans
- Pension plans
- Employee benefit plans established by employers
Its goals include requiring fiduciary oversight, setting standards of conduct, mandating disclosure of plan information, and ensuring that retirement assets are managed responsibly.
Do ERISA Rules Apply to IRAs?
In most cases, ERISA does not apply to IRAs. IRAs were created under the framework of ERISA but are directly governed by the Internal Revenue Code rather than ERISA’s fiduciary rules. Because IRAs are not employer-sponsored in the traditional sense, they are largely exempt from ERISA’s administrative and fiduciary requirements.
Instead, IRAs are primarily governed by IRS rules, including:
This means SDIRAs must follow tax law and prohibited transaction restrictions, but they are not subject to ERISA fiduciary standards.
IRS Prohibited Transactions vs. ERISA Fiduciary Rules
Confusion often arises because IRS prohibited transaction rules resemble ERISA’s fiduciary standards, but they are not the same. ERISA focuses on how employers and plan administrators manage retirement plans, enforcing duties of loyalty, prudence, diversification, and disclosure.
IRAs work differently. The IRS focuses on ownership and personal use, not oversight. The main concern is whether the IRA owner improperly benefits from the account or engages in self-dealing. Examples of prohibited transactions include:
- Using IRA-owned property personally
- Selling assets to your IRA
- Receiving income from your IRA personally
- Personally guaranteeing loans
- Transacting with close family members
Violating these rules can disqualify an IRA and result in immediate taxation of the entire account. In short, ERISA regulates how others manage retirement plans, while IRS rules govern how you interact with your own IRA.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
ERISA and 401(k) Plans vs. IRAs
Employer-sponsored 401(k) plans are governed by ERISA, which requires fiduciary oversight, participant disclosures, reporting obligations, and compliance testing. However, not all 401(k) plans are subject to ERISA. Solo 401(k) plans, or Individual 401(k)s, are generally exempt if only the owner and spouse participate. Adding non-owner employees triggers ERISA requirements.
IRAs, including SDIRAs, remain outside ERISA regardless of the types of investments held.
Why This Distinction Matters
The rules governing your retirement account determine who is responsible for decisions, how compliance is enforced, what oversight exists, and how disputes are handled. For SDIRA investors, the lack of ERISA oversight means:
- You are responsible for investment decisions
- No fiduciary makes choices on your behalf
- You must follow IRS rules directly
- Custodians act as recordkeepers, not fiduciaries
This offers great flexibility but also requires diligence.
Conclusion
Self-Directed IRAs are governed by the Internal Revenue Code, not ERISA. Understanding tax law, prohibited transaction rules, and compliance requirements is critical. While SDIRAs provide significant flexibility, that flexibility comes with responsibility. Investors must ensure their accounts are structured properly, their investments are compliant, and their transactions follow IRS rules.
This is why working with an experienced provider matters. IRA Financial, founded by tax attorney Adam Bergman, is recognized as a leader in Self-Directed IRAs. The firm’s legal and tax-focused approach goes beyond paperwork, helping investors protect their retirement assets while accessing the flexibility SDIRAs offer. Partnering with the right expert can make the difference between preserving the tax advantages of your account and inadvertently creating compliance risks.
Purchasing a Franchise with a ROBS Account: A Complete Guide for 2026 Entrepreneurs
Buying a franchise is one of the most popular ways to start a business in the United States. It offers a proven business model, brand recognition, operational support, and established systems that significantly reduce risk compared to starting from scratch. Yet one challenge consistently stands in the way of aspiring franchise owners: capital. Traditional business loans require credit approval, personal guarantees, and often significant collateral. For many entrepreneurs, even strong credit is not enough to secure the funding needed to acquire a franchise.
This is where retirement funding—and specifically the ROBS solution—can change everything.
Purchasing a Franchise with a ROBS account allows you to use retirement funds to purchase or start a business without paying taxes, penalties, or taking on debt. For entrepreneurs with substantial retirement savings, ROBS unlocks capital that would otherwise be inaccessible, while remaining fully compliant with IRS and ERISA rules.
In this guide, we’ll explain what ROBS is, how it works, why it is such a powerful funding strategy for franchise buyers, and why choosing the right ROBS provider is critical to long-term success.
Why Franchises Are Ideal Businesses for ROBS Funding
Franchises combine entrepreneurship with structure. Instead of inventing a product, process, and brand from scratch, franchise owners step into a business with established systems, supplier relationships, marketing programs, and training pipelines.
From a funding perspective, franchises are particularly well-suited to ROBS because they have the characteristics retirement plans prefer: formal legal structure, audited financials, operational clarity, and scalability. They are generally less speculative than startups and often have predictable cash flow patterns that support payroll, reinvestment, and growth.
Franchises also align with retirement funding because they are long-term investments. Most franchise success stories are built over years, not months, which mirrors the timeline retirement accounts are designed for. Instead of exposing your retirement savings to stock market volatility, ROBS allows you to invest in a controlled business environment where performance depends on execution and management.
Why Use a Retirement Account to Buy a Franchise?
For many business owners, retirement accounts represent their largest pool of capital. Until ROBS became widely used, these funds were effectively locked away until retirement age.
Using retirement funds through ROBS offers three advantages no bank loan or outside investor can match:
- Avoid debt. There are no interest payments, personal guarantees, collateral requirements, or underwriting delays.
- Preserve ownership. ROBS allows you to retain full operational control without giving up equity to outside investors.
- Eliminate taxes and penalties. Retirement funds are rolled into a business-owned 401(k) without triggering ordinary income taxes or early withdrawal penalties.
Instead of making monthly payments to a lender, you are investing in yourself, and every dollar stays inside your business.
What Is a ROBS Account?
ROBS is the only legal way to use more than $50,000 in retirement funds to start or acquire a business in which you actively work, without taking a distribution or paying taxes or penalties.
ROBS works by leveraging a special exception in IRS prohibited transaction rules under Internal Revenue Code Section 4975. While IRAs prohibit business ownership where the account holder is involved, qualified 401(k) plans are specifically allowed to purchase employer stock, known as "qualifying employer securities."
This exemption allows a properly structured 401(k) plan to become an equity owner in your business. Unlike a self-directed IRA, which permits only passive investing, ROBS lets you be fully involved in operations while remaining compliant.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
How ROBS Works Step-by-Step
A ROBS structure involves five coordinated steps:
- A new C Corporation is formed. ROBS requires a C Corporation because qualified retirement plans can purchase C Corp stock, but not LLC interests or S Corp shares.
- The corporation adopts a custom-designed 401(k) plan that explicitly allows investment in employer stock.
- Funds from an existing retirement account, such as a former employer’s 401(k) or IRA, are rolled into the new plan through a tax-free trustee-to-trustee transfer.
- The 401(k) plan purchases newly issued shares of the corporation at fair market value.
- The corporation uses those funds to buy the franchise or begin operations.
At no point do funds pass through the individual’s hands. Everything stays inside the retirement plan and corporate structure from start to finish.
Why ROBS Is Legal
ROBS is grounded in federal law. Congress explicitly allows retirement plans to invest in the stock of sponsoring employers. The IRS has confirmed that ROBS can be compliant when implemented correctly, but improper design or administration can cause disqualification. Most ROBS failures result from providers who cut corners, fail to provide ongoing plan administration, or design plans that violate participation rules. This is why working with an experienced provider is crucial.
Advantages of Using ROBS to Buy a Franchise
- Tax-free and penalty-free access to capital.
- The ability to actively run the business.
- Dividends and profits grow tax-free inside the 401(k).
- Stock sale gains flow back to the plan without immediate taxation.
- C Corporations benefit from lower corporate tax rates.
- Employees may participate in the retirement plan as your business grows.
- You can invest in yourself, directing retirement savings toward your own business rather than external investments.
Comparing ROBS, SDIRA, and Solo 401(k) Loans
| Feature | ROBS | Self-Directed IRA | Solo 401(k) Loan |
|---|---|---|---|
| Can fund business you work in | ✅ Yes | ❌ No | ❌ No |
| Tax-free funding | ✅ Yes | ❌ No | ✅ Yes |
| Ownership limits | No limit | Under 50% | N/A |
| Loan obligations | None | None | Required |
| Plan type | 401(k) only | IRA | 401(k) |
| Business structure | C Corporation | Any (passive only) | Any |
| Funding limits | Unlimited | Ownership capped | $50,000 max |
Why IRA Financial Is the Leader in ROBS
IRA Financial is widely recognized as the industry authority on ROBS structures. Founded by Adam Bergman, one of the nation’s foremost self-directed retirement attorneys, IRA Financial has successfully structured thousands of ROBS arrangements over more than 16 years.
Unlike providers who set up paperwork and disappear, IRA Financial offers ongoing support, including:
- Custom plan design
- Corporate formation
- Continuous compliance support
- Tax consultation
- Annual plan administration
- IRS reporting
- Audit defense
Adam Bergman has authored multiple books on ROBS and self-directed retirement planning. Entrepreneurs nationwide—from restaurant franchises to retail chains, professional practices, and manufacturing businesses—trust his firm to guide them safely through the ROBS process.
Conclusion: ROBS Is the Ultimate Entrepreneur’s Tool
ROBS is a legal, IRS-recognized strategy that allows entrepreneurs to turn years of disciplined retirement savings into business ownership—without penalties, debt, or surrendering control.
When properly structured and administered, ROBS offers confidence: confidence that your capital is working for you, confidence that your efforts build both income and retirement simultaneously, and confidence that your future is determined by execution, not Wall Street.
For franchise buyers serious about long-term independence, ROBS is more than funding. It is empowerment, and when paired with the right partner, it can be truly transformative.
Checkbook IRA Compliance: Rules, Risks, and How to Stay IRS-Compliant
The Self‑Directed IRA (SDIRA) has given retirement investors the ability to move beyond traditional Wall Street assets and into alternative investments such as real estate, private equity, precious metals, cryptocurrency, and startups. Among all SDIRA structures, the Checkbook Control IRA is often considered the most flexible because it allows investors to make transactions directly without relying on a custodian for every step.
But with control comes responsibility. Misusing a Checkbook IRA can create serious tax consequences, including full account disqualification. Understanding what is allowed and what is prohibited is essential for anyone using this strategy. This guide outlines the core compliance rules, the most important Do’s and Don’ts, and how to protect your retirement account from costly IRS mistakes.
Two Types of Self‑Directed IRAs for Alternative Investing
When using a SDIRA to invest in alternative assets, investors typically choose between two structures: custodian‑controlled and checkbook‑controlled IRAs.
A custodian‑controlled IRA is the traditional model. The IRA directly owns the investment, and the custodian must approve every transaction. Every purchase, sale, wire transfer, or expense requires custodian involvement. This model works well for passive investors who do not need frequent or time‑sensitive transactions.
A Checkbook Control IRA shifts operational control to the investor. In this structure, the IRA forms and owns an LLC, and the IRA owner serves as the non‑compensated manager of that LLC. The LLC opens its own bank account, and the investor can write checks, send wires, and close deals immediately without waiting for custodian approval.
How Checkbook Control Works and Why It Is Legal
A Checkbook IRA begins with forming an LLC that is owned entirely by the IRA. The IRA owner acts as the LLC’s manager but is not allowed to receive compensation. Funds move from the IRA into the LLC, and all investments are made through the LLC bank account.
The legality of this structure is supported by several key authorities:
- Swanson v. Commissioner (1996): The Tax Court held that an IRA may form and fund a corporation without triggering a prohibited transaction.
- IRS Field Service Advisory 200128011: The IRS confirmed that IRA‑owned entities are permitted.
- T.L. Ellis v. Commissioner (2013): The Tax Court upheld the IRA‑owned LLC model and clarified that newly formed entities are not disqualified persons under IRC Section 4975.
These rulings form the legal foundation of the Checkbook IRA and confirm that investors may manage IRA‑owned entities as long as they follow IRS compliance rules.
Why Investors Choose Checkbook Control
When used correctly, a Checkbook IRA offers several advantages:
- Immediate control over funds. Investors can complete transactions quickly, which is essential for real estate closings, private deals, or competitive bidding situations.
- Limited liability protection. If a lawsuit occurs, the claim is limited to the assets inside the LLC.
- Greater privacy. Property ownership is recorded in the name of the LLC, not the investor personally.
- Lower long‑term fees. Investors avoid repeated custodian transaction fees.
- Practical flexibility. Strategies such as private lending, syndications, crypto transactions, or short‑term investments become much easier without custodian delays.
The Do’s and Don’ts of Checkbook IRA Compliance
A Checkbook IRA is powerful, but it requires discipline and a strong understanding of IRS rules.
Do Understand the Prohibited Transaction Rules (IRC Section 4975)
These rules exist to prevent investors from benefiting personally from IRA assets. At the core of these rules is a simple principle: you cannot use IRA investments as if they belong to you personally.
Do Not Personally Use IRA Assets
You cannot live in, visit, vacation in, or otherwise use IRA‑owned property. Even brief personal use is prohibited. Real estate held inside a Checkbook IRA must remain strictly investment property.
Do Not Receive Compensation
You cannot pay yourself a salary or fee for managing the LLC or performing work on IRA‑owned assets. You may act as the LLC manager, but only in an unpaid, fiduciary capacity.
Do Not Personally Guarantee Loans
If your IRA uses a loan, it must be nonrecourse. You may not personally guarantee any loan related to IRA assets or use personal property as collateral.
Do Not Store or Transport IRA Assets for Personal Use
You cannot take possession of metals, collectibles, documents, or property owned by the IRA. Physical control, even temporarily, can be treated as a distribution and disqualify the account.
UBIT and Real Estate Leverage
Most IRA investments grow tax‑deferred or tax‑free. However, if the IRA uses leverage, the income linked to the financed portion may be subject to UBIT under the Unrelated Debt‑Financed Income rules.
This tax can reach rates as high as 37 percent. Investors should understand how leverage affects overall returns and should consult a tax professional before borrowing funds inside a Checkbook IRA.
Keep the LLC in Good Standing
Maintaining the legal integrity of the IRA‑owned LLC is essential. This includes:
- Filing annual state reports
- Keeping business and personal accounts completely separate
- Filing partnership returns (Form 1065) if the LLC is owned by more than one IRA
- Maintaining accurate bookkeeping and documentation
Neglecting these requirements can jeopardize both liability protection and IRS compliance.
Why the Right Self‑Directed IRA Custodian Matters
Not all SDIRA custodians understand the complexities of checkbook control. Some avoid offering the structure entirely, while others provide it without meaningful compliance support.
A qualified SDIRA custodian should:
- Provide compliant IRA and LLC setup
- Offer annual consulting services
- Understand IRS prohibited transaction rules
- Handle IRS reporting and tax filings
- Support UBIT analysis
- Assist with entity documentation and amendments
Why IRA Financial Is the Industry Leader in Checkbook IRAs
IRA Financial is the pioneer of the modern Checkbook IRA, founded by nationally recognized tax attorney Adam Bergman. Over more than sixteen years, Adam has written nine books on self‑directed retirement accounts, published two books specifically on Checkbook IRAs, and helped tens of thousands of investors establish IRA‑owned LLC structures.
What sets IRA Financial apart is its comprehensive compliance and tax reporting support. For one low annual fee, clients gain access to in‑house attorneys, CPAs, and tax professionals who handle IRS reporting (Forms 5498 and 1099‑R), UBIT filings (Form 990‑T), LLC tax returns (Forms 1065 or 1120), state compliance filings, and provide unlimited consulting on rules and structure maintenance. No other SDIRA provider offers this level of integrated support.
Conclusion
A Checkbook IRA offers exceptional control, but the same flexibility that makes it appealing can create major problems if misused. With the right custodian, proper setup, and ongoing compliance support, a Checkbook IRA can be one of the most effective retirement strategies available.
With IRA Financial’s experience, legal foundation, and dedicated compliance team, investors can use checkbook control confidently and protect their retirement savings while doing so.
7 Tips on How to Choose an IRA Custodian for a Checkbook IRA
As alternative investments continue to grow in popularity, more retirement investors are turning to the Self-Directed IRA (SDIRA), especially when it includes the flexibility of checkbook control. While the structure itself is powerful, the success of a Checkbook IRA depends heavily on one decision: choosing the right IRA custodian.
Not every custodian offers checkbook control, and even fewer have the expertise and long-term support needed to keep the structure compliant with IRS rules. Choosing the wrong provider can expose your retirement account to serious risk. This guide explains what a Self-Directed IRA is, how checkbook control works, and the seven most important tips for selecting the right custodian.
What Is a Self-Directed IRA?
A Self-Directed IRA is an IRA that allows account owners to invest beyond traditional Wall Street assets. With a SDIRA, investors can hold IRS‑approved alternative assets such as:
- Real estate
- Private equity
- Cryptocurrency
- Precious metals
- Lending notes
- Startups and venture capital
- Tax liens
- LLC interests and partnerships
Traditional brokerage firms limit IRAs to public investments because of their business model, not because of IRS restrictions. A SDIRA has the same tax treatment as any IRA but offers much broader investment options.
Types of Self-Directed IRAs: Custodian-Controlled and Checkbook Control
Custodian-Controlled IRA
The IRA directly owns the assets, and the custodian must approve every transaction. Any purchase, expense, or income event requires investor instructions. This model works for passive investing but often causes delays, additional paperwork, and higher fees.
Checkbook Control IRA
A Checkbook IRA uses an IRA‑owned LLC. The IRA owns the LLC, and the investor serves as the non‑compensated manager. The LLC opens its own bank account, which allows the investor to make transactions immediately without waiting for custodian approval.
This structure is ideal for:
- Real estate investors
- Private lenders
- Crypto investors
- Syndication participants
- Investors who require speed and hands‑on control
How Checkbook Control Works
The setup follows a simple sequence:
- Open a Self‑Directed IRA with a qualified custodian.
- Form a special‑purpose LLC owned by the IRA.
- Fund the LLC with IRA money.
- Manage the LLC as the non‑compensated manager.
- Make investments directly through the LLC bank account.
The custodian remains the official administrator of the IRA, but the investor controls day‑to‑day transactions.
Legal Foundation of Checkbook Control
The Checkbook IRA structure is well established through court rulings and IRS guidance:
- Swanson v. Commissioner (1996): The Tax Court confirmed that an IRA may fund a newly created entity without triggering a prohibited transaction.
- IRS Field Service Advisory 200128011: The IRS recognized IRA‑owned entities as permissible.
- Ellis v. Commissioner (2013): The Tax Court ruled that managing an IRA‑owned LLC does not violate IRC Section 4975.
These authorities confirm that checkbook control is legal when operated correctly.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
7 Tips for Choosing the Right Checkbook IRA Custodian
1. Choose a Custodian with Deep Expertise
Not all custodians understand checkbook structures. Look for expertise in:
- Prohibited transaction rules under IRC Section 4975
- UBIT and UDFI
- IRA‑owned LLCs
- Real estate and private investments
IRA Financial is widely recognized as the industry leader in Checkbook IRA structuring and compliance, serving more than 27,000 clients and administering over $5 billion in assets.
2. Avoid Asset‑Based Fees and Choose Flat Fees
Some custodians charge fees based on the value of your account, which means your costs rise as your portfolio grows. A true Checkbook IRA custodian should use a flat‑fee model.
IRA Financial pioneered flat‑fee pricing so investors are never penalized for success.
3. Ensure Your Custodian Provides Annual Consulting
Checkbook IRAs require ongoing compliance support. Your custodian should offer unlimited annual consulting on:
- Prohibited transactions
- UBIT concerns
- Investment structure questions
- Operational rules for IRA‑owned LLCs
Very few custodians offer direct access to in‑house tax professionals. IRA Financial does.
4. Look for State LLC Filing Support
LLCs must remain in good standing with the state, which means filing annual reports and maintaining a registered agent.
Your custodian should help with:
- Annual report filing
- Registered agent updates
- Compliance reminders
Failure to maintain your LLC can jeopardize both compliance and liability protection.
5. Federal and State Tax Filing Services Are Essential
Most custodians do not handle tax filings for IRA‑owned LLCs. IRA Financial provides:
- Federal partnership returns (Form 1065)
- C Corporation returns (Form 1120)
- UBIT returns (Form 990‑T)
- State returns when required
These filings are critical if your LLC:
- Has multiple IRA owners
- Runs an active business
- Uses leverage
- Generates taxable income
6. Bank Account Setup Should Be Hands‑On
Opening the LLC’s bank account is one of the most common points of delay. Your custodian should assist with:
- IRS documentation
- Verification letters
- Correct titling
- Bank compliance forms
This support ensures your account is funded quickly and avoids unnecessary setbacks.
7. Confirm Ongoing Checkbook IRA Management Support
The best custodians support their clients long after the initial setup. IRA Financial provides:
- Unlimited compliance and tax consulting
- Rules interpretation
- Annual monitoring
- IRS reporting (Forms 5498 and 1099‑R)
- Long‑term guidance throughout the life of your IRA
Your custodian should be a long‑term partner, not just a processing service.
Why IRA Financial Is the Clear Leader
IRA Financial was founded by Adam Bergman, one of the country’s leading SDIRA attorneys and the author of nine books on self‑directed retirement strategies, including two devoted exclusively to Checkbook IRAs.
With more than 16 years of experience, tens of thousands of clients, and a full in‑house team of attorneys and CPAs, IRA Financial has set the standard for Checkbook IRA expertise and support. The firm does more than establish the structure. It ensures investors operate it safely and confidently.
Conclusion
A Checkbook IRA offers unmatched flexibility and control, but only when supported by the right custodian. Selecting the wrong provider can undermine the entire structure and introduce unnecessary risk.
By following these seven tips and choosing a trusted leader like IRA Financial, investors can protect their retirement savings while harnessing the full power of checkbook control. With deep expertise, comprehensive tax support, and leadership from Adam Bergman, IRA Financial remains the industry’s most reliable and experienced Checkbook IRA provider.
How to Invest in Private Companies with a Self-Directed IRA
Many of today’s most promising investment opportunities aren’t listed on the stock exchange—which is why more individuals are choosing to invest in private companies with a Self-Directed IRA.
Some of the world’s fastest-growing companies stay private for years before they ever consider going public. Early investors in companies like SpaceX, OpenAI, Stripe, and Airbnb built enormous wealth long before the general public had access.
What most people do not realize is that investing in private companies is not limited to venture capital firms or institutional funds. With the right setup, individuals can use retirement money to invest in private businesses through a Self-Directed IRA. Done correctly, this approach offers access to private markets while still keeping the powerful tax advantages of an IRA.
However, this strategy is not something to approach casually. How the investment is structured matters. The tax rules matter. And the custodian you choose may be the most important decision of all.
What Is a Private Placement?
A private placement is an offering of securities that is not registered or traded on a public stock exchange. Instead of listing shares publicly, companies raise money privately from a limited group of qualified investors under specific federal exemptions.
Private placements do not offer immediate liquidity and may take years before investors can exit. The tradeoff is access to early-stage opportunities where valuations are still developing and growth potential is often significantly higher.
Many of today’s leading companies were funded through private placements long before they became well known. Early investors who took on the risk often saw returns that the public markets rarely deliver.
Why Investors Look to Private Companies
Investing privately appeals to long-term investors who want ownership rather than trading activity. Instead of purchasing a stock after most of the growth has already occurred, private investing allows individuals to participate during a company’s most formative stages.
Private investments also offer diversification. These businesses do not rise and fall with daily market swings, and they often have different risk and return patterns than public equities. While private deals carry more individual risk, they can help balance long-term portfolios.
Many investors also appreciate the sense of connection that comes with owning a business they understand and believe in.
Who Can Invest in Private Companies?
Most private offerings fall under Regulation D or Regulation A.
Regulation D offerings generally require the investor to be accredited.
This usually means meeting certain income or net-worth thresholds.
Regulation A allows some companies to accept non-accredited investors, although the rules are more restrictive and require a higher level of regulatory oversight.
A Self-Directed IRA does not override these qualification rules. If you qualify personally, your IRA will typically qualify as well, as long as the investment is structured properly and the documentation is accurate.
Why Traditional Brokerages Block Private Investments
Many investors assume they cannot invest retirement money in private companies because their brokerage does not allow it. The limitation comes from the platform, not from the IRS.
Brokerages are built for public stocks, mutual funds, and ETFs. These assets integrate easily into automated systems, trading platforms, and fee-based billing. Private assets do not. They require manual review, legal documentation, and specialized reporting.
Because private placements create complexity without generating additional revenue for the brokerage, most firms simply disallow them.
The solution is not changing the rules. It is using an IRA structure that permits alternative assets.
What a Self-Directed IRA Actually Is
A Self-Directed IRA is not a new type of IRA. It is a standard IRA that is held by a custodian that allows alternative assets such as private equity, real estate, cryptocurrencies, secured loans, and more.
The IRS allows retirement accounts to own almost any asset except a few prohibited categories. Private companies are not on the prohibited list. The obstacle is the custodian, not the law.
However, not all Self-Directed IRA custodians offer the same level of support. Some provide only basic transaction processing. Others, like IRA Financial, provide tax guidance, structural review, and compliance oversight. Private investing requires much more than basic paperwork.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
Why the Tax Benefits Matter
Using an IRA to invest in a private company can dramatically change long-term results.
In a Traditional IRA, gains grow tax deferred until you take distributions.
In a Roth IRA, qualified gains can be completely tax free.
A single successful private investment inside a Roth IRA can compound for decades without tax erosion. Outside an IRA, the same investment would likely be subject to capital gains tax, dividend tax, and possibly ordinary income tax, all of which reduce net returns.
Tax deferral and tax-free compounding give retirement investors significantly more leverage.
Where Taxes Can Still Apply: UBIT
Although IRAs are tax advantaged, they are not tax exempt in every situation. Under certain conditions, the IRS applies Unrelated Business Income Tax, known as UBIT.
UBIT can apply when an IRA:
- Directly owns an operating business
- Receives pass-through income from an LLC or partnership
- Invests in a business that uses debt financing
If net business income exceeds one thousand dollars in a year, UBIT may apply at rates up to 37 percent.
This is why proper structure is essential.
Why Business Structure Determines Tax Treatment
Most venture-backed companies are structured as C corporations. There is a reason for that.
A C corporation pays tax at the corporate level. When the IRA owns shares, the income it receives is considered investment income such as dividends or appreciation. Investment income is generally not subject to UBIT.
In contrast, LLCs and partnerships pass their income directly to the owner. If an IRA is the owner, the IRS may treat the IRA as if it is operating a business, which can trigger UBIT.
This is why many companies seeking institutional or retirement investors organize as C corporations.
Why IRA Financial
IRA Financial is a national leader in Self-Directed retirement structures. The firm serves more than 27,000 clients and administers billions of dollars in alternative assets. It was founded by Adam Bergman, a tax attorney who has written extensively on Self-Directed retirement strategies.
The firm prioritizes tax structure, compliance, and client support rather than selling investments. IRA Financial provides:
- IRA structuring
- UBIT and tax analysis
- Transaction review
- Document and subscription agreement evaluation
- Regulatory reporting
- Form 990-T filing when needed
- Ongoing consultation with tax professionals
For private company investing, this level of guidance is essential.
Conclusion
Private investing has historically created significant wealth for those who accessed it early. A Self-Directed IRA gives everyday investors the ability to pursue similar opportunities within a tax-advantaged structure.
However, success in private investing is not only about choosing the right company. It is about choosing the right structure and custodian. The business may grow, but the real question is whether you keep the gains.
With the right Self-Directed IRA and the right guidance, private company investing can become one of the most powerful strategies available to long-term investors.
Private Credit in 401(k)s: Why It Matters for Investors and Fiduciaries
Private Credit in 401(k)s has quickly moved from a niche corner of finance to one of the most significant pillars of institutional investing. Pension funds, endowments, and family offices have steadily increased their allocations to private lending as traditional banks step back from middle‑market financing. In 2025, this trend is accelerating as investors search for stable income, inflation protection, and diversification beyond the public markets.
Even with this growth, private credit remains difficult to access inside most employer retirement plans. Understanding why, and how individuals can still participate, is essential for anyone looking to modernize their retirement strategy.
What Is a Private Credit Fund?
A private credit fund provides loans directly to businesses, real estate projects, and private enterprises without using a traditional bank as the intermediary. These loans may take the form of senior secured debt, mezzanine financing, bridge loans, asset‑based lending, or specialty finance structures.
Instead of buying public bonds, private credit investors act as lenders. They earn returns through interest and fee income rather than through equity ownership. Because the borrowers often need customized lending solutions or lack access to bank financing, private credit strategies usually offer higher yields than traditional fixed‑income products.
However, the risk profile varies. Private credit carries exposure to borrower default, illiquidity, changing economic conditions, and the skill of the fund’s underwriting team. The opportunity is real, but so is the need for careful evaluation.
Why Private Credit Is Growing in 2025
Private credit is thriving for a simple reason: demand for capital has exceeded the lending capacity of the banking sector.
Regulatory pressure, balance sheet requirements, and higher operating costs have limited banks’ ability to lend to small and mid‑sized businesses. Yet companies still need financing for expansion, acquisitions, and everyday operations. Private credit funds have stepped in to fill that gap.
This demand has turned private credit into one of the most attractive income‑generating strategies available today. While public markets often fluctuate sharply, private loans can provide more predictable cash flow as long as the borrower performs. Rising interest rates have only strengthened the appeal by increasing yields across lending strategies.
For retirement investors, the value proposition is straightforward: access to alternative income without relying solely on the stock market.
Who Can Invest in Private Credit Funds?
Most private credit funds are offered under securities exemptions that limit participation to accredited investors. Accreditation typically requires meeting income or net‑worth thresholds designed to ensure that only financially qualified investors access higher‑risk offerings.
Using retirement funds does not change these SEC requirements. If an investor qualifies personally, they may typically participate through a Self‑Directed IRA or a Solo 401(k), provided that the fund’s documentation and offering structure permit retirement‑based investors.
Why Employer 401(k) Plans Do Not Offer Private Credit
The lack of private credit options in employer plans is not due to investment regulations. It is the result of fiduciary and liability concerns.
Employers that sponsor 401(k) plans are subject to ERISA, which requires prudence, diversification, and ongoing oversight of plan investments. Private credit involves illiquidity, complex valuation, and underwriting risks that can be difficult for employers to justify to regulators or courts.
Even though federal guidance allows alternative investments in theory, employers face rising litigation risk related to plan investment performance. Private credit carries characteristics that plan sponsors are reluctant to defend. As a result, most companies limit their menus to mutual funds and target‑date funds that carry lower fiduciary exposure.
Book a free call with a self-directed retirement specialist
- Review your self-directed retirement options
- Learn about investing in alternative assets
- Get all of your questions answered
The 2025 Executive Order and Its Limits
In August 2025, President Trump issued an Executive Order encouraging regulators to expand access to private market investments in 401(k) plans. The goal was to give retirement savers broader options, including private credit, private equity, and real assets.
The directive signals a meaningful shift in policy discussions by acknowledging that retirement portfolios should not be confined to public stocks and bonds.
However, the executive order does not remove fiduciary responsibility or change the legal standards employers are judged by. Plan sponsors remain cautious because the risk of litigation has not disappeared. Even with supportive policy language, adoption is likely to progress slowly.
How Private Credit Can Enter a 401(k) Today
Because employer plans remain conservative, most investors gain access to private credit through rollovers into Self‑Directed IRAs or Solo 401(k) plans.
When an employee leaves a job, retires, or experiences another qualifying event, their 401(k) becomes eligible for rollover into an IRA. Once inside a Self‑Directed IRA, the investor can allocate capital to private credit without employer restrictions.
Rollovers can be completed in two ways:
- A direct rollover transfers funds institution to institution and avoids taxation completely when processed correctly.
- An indirect rollover involves receiving a check personally and depositing it into a new plan within 60 days, although this method carries withholding requirements and higher risk.
Direct rollovers are the safer and more common approach.
Tax Advantages of Private Credit in a Self‑Directed IRA or Solo 401(k)
Private credit returns are typically taxed as ordinary income in a taxable account. Interest payments, origination fees, and other forms of debt‑related income are taxed at the investor’s highest marginal rate. Over time, this can significantly reduce net returns.
Holding private credit inside a retirement structure changes the outcome entirely. In a Self‑Directed IRA or Solo 401(k), income compounds tax‑deferred or, with a Roth structure, potentially tax‑free. Instead of losing a portion of each payment to taxes, investors can reinvest the full amount, accelerating long‑term growth and improving overall performance.
The Solo 401(k) Advantage
For business owners and self‑employed individuals, the Solo 401(k) is one of the most powerful tools available.
A Solo 401(k) functions like a traditional 401(k) but has no employee participants other than a spouse. Because the accountholder serves as trustee, they gain far more control over investment decisions. This includes immediate access to private credit investments without institutional restrictions.
Brokerage‑based Solo 401(k)s usually limit investors to stocks and mutual funds. A true Self‑Directed Solo 401(k) offers checkbook control and open architecture, allowing for fast deployment of capital into private credit opportunities.
To qualify, the investor must have self‑employment income and no full‑time W‑2 employees other than a spouse.
Contribution Power in 2025 and 2026
The Solo 401(k) allows the highest contribution limits of any retirement plan.
For 2025:
- Employee deferrals: $23,500 under age 50, $31,000 for age 50 or older, and $34,750 for ages 60 to 63
- Total limits including employer contributions: $70,000 under age 50, $77,500 for age 50 or older, and $81,250 for ages 60 to 63
For 2026:
- Employee deferrals: $24,500 under age 50, $32,500 for age 50 or older, and $35,750 for ages 60 to 63
- Total limits including employer contributions: $72,000 under age 50, $80,000 for age 50 or older, and $83,250 for ages 60 to 63
These higher limits allow investors to build diversified private credit portfolios faster than any IRA structure.
Loans, Roth Flexibility, and Additional Tax Benefits
Solo 401(k)s allow participants to borrow from their account, up to the lesser of $50,000 or 50 percent of the account balance, without triggering taxes. They also support powerful Roth strategies, including the Mega Backdoor Roth. This feature allows after‑tax contributions up to plan limits and immediate Roth conversion, potentially turning private credit income into long‑term tax‑free returns.
Solo 401(k)s also enjoy an exemption from UBIT on leveraged real estate under Internal Revenue Code section 514(c)(9), a benefit not available to IRAs.
Why IRA Financial
IRA Financial is a national leader in Self‑Directed retirement solutions. Founded by tax attorney Adam Bergman, the firm supports tens of thousands of clients and oversees billions in retirement assets. IRA Financial designs custom Solo 401(k) plans and Self‑Directed IRAs with checkbook control, Roth optimization, and full compliance oversight.
The company does not sell investment products. Instead, it provides the legal and structural framework that allows investors to safely allocate retirement capital to alternative assets such as private credit.
Conclusion
Private credit has become one of the most important developments in modern investing. While employer 401(k) plans remain slow to adopt these strategies, individual investors have more control than ever through Self‑Directed IRAs and Solo 401(k)s.
Rollovers and self‑directed plans provide access, flexibility, and powerful tax advantages that traditional employer plans cannot match. In 2025, private credit is no longer just another investment idea. It has become one of the most compelling opportunities for generating steady income. When paired with the right retirement structure, those returns can be transformed into long‑term, tax‑advantaged or even tax‑free wealth.
Roth IRA Distribution Rules
The Roth IRA distribution rules should be pretty simple. Make sure the Roth IRA is open at least five years and wait until you are over the age of 59½ and all Roth IRA distributions should be tax-free. However, like almost any rule in the tax code, there are an assortment of exceptions that make a simple rule, actually quite complex.
- Qualified Roth IRA Distribution are tax-free
- One must be at least 59½ years old and the oldest Roth IRA must be opened for at least five years
- The rules vary based on how the plan was funded
As a tax attorney, I have been dealing with the Roth IRA distribution rules for over twenty years. I have written eight books on retirement accounts and finally decided that it is time to write a short and simple blog that covers all the Roth IRA and Roth 401(k) plan distribution scenarios simply and clearly. So here we go.
What is a Roth IRA?
The Roth IRA is an after-tax IRA that allows any US person with earned income under a set income threshold (between $153,000 and $168,000 for single filers and $242,000 and $252,000 if married and filing jointly) to make after-tax contributions up to $7,500 or $8,600 if over the age of 50 in 2026. So long as the Roth IRA has been opened at least 5 years and the Roth IRA has been opened at least 5 years, all Roth IRA distributions would be tax-free. Also, with a Roth IRA, there are no RMDs.
Roth IRA Distribution Rules
When analyzing the Roth IRA distribution rules, it is important to examine them based on the origin of the Roth IRA funds. In other words, breaking down where the Roth IRA funds came from: Roth IRA contributions and/or Roth IRA conversions.
Roth IRA Contributions
To contribute to a Roth IRA you must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net income from self-employment. For tax years beginning after 2024, there is no age limit to contribute to a traditional IRA. Compensation for purposes of contributing to an IRA doesn't include earnings and profits from property, such as rental income, interest, and dividend income, or any amount received as pension or annuity income, or as deferred compensation.
In the case of a Roth IRA contribution, in general, if one is over the age of 59½ and the Roth IRA has been funded and opened at least five years, the Roth IRA distribution will be a “qualified” distribution and the entire distribution would be tax-free.
Related: Tax-Free vs Tax Deferred
Five-Years
The rules for courting the five-year rules are a bit peculiar. For example, a Roth IRA contribution made in April 2026 will still count as a contribution for the 2025 tax year. The rule basically gives you credit as if you made the contribution on January 1, 2026, which means the first year of a potential qualified distribution would be 2031. In addition, once you have made a Roth IRA contribution, the clock starts ticking for all Roth IRAs in the aggregate. In other words, once you satisfy the five-year rule, you will have satisfied it for every Roth IRA in the future. Note, there is a separate five-year rule for each 401(k) plan you have participated in.
Non-Qualified Distributions
Whereas, if the Roth IRA distribution is not a “qualified” distribution, either because any Roth IRA was not opened at least five years or the Roth IRA holder was under the age of 59½, then one must look at the Roth IRA distribution ordering rules to determine what percentage of the Roth IRA distribution would be taxable and subject to income tax and potentially a 10% early distribution penalty. This is where the distinction between Roth IRA contributions and Roth IRA earnings comes into play.
Contributions vs. Earnings
Roth IRA contributions
Roth IRA Contributions can always be taken as a tax-free distribution at any time. In other words, if you make a Roth IRA contribution on March 1, 2026, you can take the entire amount of Roth IRA contributions as a distribution on March 2, 2026, and pay no tax or penalty. This is the case even if you are under the age of 59½ and/or the Roth IRA has been opened less than five years. The idea behind this rule is that since the Roth IRA contribution is with after-tax funds, there is no IRS tax loss for allowing the contribution to be taken back immediately. It is important to note, that the rules for Roth IRA conversions are quite different.
Roth IRA Earnings
Roth IRA earnings means the income and gains generated from the Roth IRA contributions. In other words, contributions are what you put into the Roth IRA from your personal income or compensation. Whereas, the earnings are the investment returns from the Roth IRA contributions.
In sum, when it comes to taking a distribution of Roth IRA earnings, the Roth IRA owner must be over the age of 59½, and the Roth IRA must be opened and funded for at least five years for the distribution of Roth IRA earnings to be tax and penalty-free. The five-year clock starts ticking as soon as the Roth IRA was funded. For example, if Lisa contributed $5,000 to a Roth IRA on May 5, 2026, at age 23, Lisa would be able to take the entire $5,000 as a tax-free distribution anytime. However, if on September 2, 2026, the $5,000 of contributions generated $1,100 of earnings, for a Roth IRA total asset value of $6,100, Lisa would have to wait until she was 59½ and the Roth IRA was opened at least five years before taking a tax-free distribution of the $1,100. Any distribution of the Roth IRA earnings ($1,100) would be subject to income tax and a 10% early distribution penalty.
Roth IRA Conversions
A Roth IRA conversion occurs when one converts a pre-tax IRA to Roth IRA. The benefit of doing a Roth IRA conversion is that one is able to turn pre-tax IRA funds that will ultimately be subject to tax upon a distribution and a required minimum distribution (RMD) after the age of 73 to tax-free income. The downside is that a Roth IRA conversion is subject to income tax based on the value of the pre-tax IRA that was converted. Whereas, a Roth IRA is not subject to any RMDs and any distribution of converted Roth IRA funds could be tax-free, subject to certain restrictions. Let’s get into the different Roth IRA conversion distribution scenarios, which are a bit more complex than the Roth IRA contribution distribution rules.
Backdoor Roth IRA
Since 2010 the backdoor Roth IRA strategy has been used by high income earners that make Roth IRA contributions. For 2026, if one is married filing jointly and makes in excess of $252,000 or $168,000 if single, they are technically not permitted to make Roth IRA contributions. However, since 2010 the IRS removed any income restrictions for making Roth conversions. Hence, in 2026, anyone can make a Roth IRA contributions either directly or via a backdoor Roth IRA irrespective of income.
Making a backdoor Roth IRA can be best understood in a few short steps:
- Open a Traditional IRA
- Make an after-tax Traditional IRA contribution. Do not treat the IRA contribution as tax deductible on your tax return.
- Make an IRA contribution for 2026 of up to $7,500 or $8,600 if over 50
- Notify your IRA custodian that you want to convert the after-tax Traditional IRA to Roth
- Funds are transferred to Roth IRA
- IRA custodian issues a 1099-R in the following year indicating that a no tax conversion occurred.
Conversions of after-tax funds to Roth IRA are not subject to the five-year rule for the contributed amount, but earnings are subject to the 59½- and five-year rule. Hence, if one converted after-tax IRA funds to Roth and is under the age of 59½, one can take the amount converted to Roth IRA anytime without tax or penalty. While pre-tax IRA funds converted to Roth, would be subject to the five-year rule if the Roth IRA owner is under the age of 59½
Pre-tax IRA Converted to Roth
When one converts a pre-tax IRA to a Roth IRA, there is a set of ordering rules that must be used to determine the tax impact of a Roth IRA distribution:
The first item to examine when determining when a Roth IRA of converted funds would be taxable is the five-year rule. If one is under the age of 59½ and does a Roth IRA conversion, one must wait at least five years to take out the converted amount as a Roth IRA distribution tax-free. Just like the quirky Roth IRA contribution timing rules, the Roth IRA conversion is deemed to have occurred as of January 1st of that year, even if the conversion was made on December 31. In other words, unlike a Roth IRA contribution which allows Roth IRA contributions to be taken out tax-free at any time, when it comes to a Roth IRA conversion of pre-tax funds, if the Roth IRA owner is under the age of 59½, he or she must wait at least five years before taking a tax-free distribution of the converted Roth IRA amount.
In the case where a Roth IRA distribution is taken prematurely and is not a “qualified distribution,” the Roth IRA distribution would be subject to a 10% early distribution penalty.
However, if one is over the age of 59½, one can take a distribution of the funds converted anytime without having to satisfy the five-year rules and pay no 10% early distribution penalty. Note – this exception only applies to the converted Roth IRA amount. Any earnings on the amount of funds converted to a Roth IRA can only be taken out tax-free if the Roth IRA owner is over the age of 59 ½ and the Roth IRA has been opened at least 5 years. In addition, unlike the five-year rule for Roth IRA contributions, in the case of Roth IRA conversions, each Roth IRA conversion amount has its own five-year time period, which means that the oldest Roth IRA conversions are withdrawn first, and the most recent conversions are withdrawn last.
For example, Lisa is 42 years old and elects to do a Roth conversion of $50,000 of pre-tax IRA funds on December 15, 2025. The Roth IRA conversion will be deemed to have occurred for the five-year rule on January 1, 2025. Since Lisa, is under the age of 59½, she will have to wait five years before taking any of the $50,000 converted tax-free. Once Lisa is over the age of 59½, she will have satisfied the five-year rule and can take a distribution of Roth IRA contributions and earnings tax-free. Hence, at age 60, if the Roth IRA was worth $235,000, she could take a tax-free distribution of all or some of the Roth IRA tax-free.
After-Tax IRA Converted to Roth
The rules for conversions of after-tax IRA funds to Roth are slightly different than the rules for pre-tax IRA conversions. After-tax IRA contributions are not tax deductible and are only made in very rare circumstances, such as for a backdoor Roth IRA.
Not all individual taxpayers are eligible to make Roth IRA contributions. Roth IRA contribution eligibility phases out between $153,000 and $168,000 for single filers and $242,000 and $252,000 for married couples filing jointly. In essence, a backdoor IRA allows a high-income earner, who has exceeded the Roth IRA annual income contribution limits, to circumvent those rules and make the Roth IRA contribution.
Under Internal Revenue Code Section 408(d)(2), the aggregation rules hold that when an individual has multiple pre-tax IRAs, they will all be treated as one account when determining the tax consequences of any distributions (including a distribution out of the account for a Roth conversion). Hence, when converting an after-tax IRA to a Roth IRA, one has to take into account all other pre-tax IRAs to determine the percentage of the converted amount that will be eligible for the Roth conversion. Whereas, if one if converting after-tax IRA funds to Roth and does not have any pre-tax IRAs, then the entire amount of the after-tax IRA can be converted to Roth.
Conversions of after-tax funds to Roth IRA are not subject to the five-year rule for the contributed amount, but earnings are subject to the 59½- and five-year rule. Hence, if one converted after-tax IRA funds to Roth and is under the age of 59½, one can take the amount converted to Roth IRA anytime without tax or penalty. While pre-tax IRA funds converted to Roth, would be subject to the five-year rule if the Roth IRA owner is under the age of 59½.
Roth 401(k) Plan Rollover to a Roth IRA
One of the most popular ways of funding a Roth IRA is through a rollover. In general, one can only rollover funds from a 401(k) plan if you have satisfied a plan-triggering event. A plan-triggering event typically occurs when you reach the age of 59½, leave your job or the plan is terminated. Otherwise, other than for a hardship distribution or an in-plan service withdrawal exception, one is not permitted to take a distribution from a 401(k) plan, including an IRA rollover.
If one has satisfied the plan triggering rules, one can rollover a Roth 401(k) to a Roth IRA tax-free. It is important to remember that even if you have satisfied the five-year rule in the 401(k) plan, you must also satisfy the five-year rule in a Roth IRA. However, the five-year Roth IRA clock starts ticking the year you make any Roth IRA contribution. Thus, so long as you have made a Roth IRA contribution to any Roth IRA, those years will count towards any Roth IRA five-year clock. This is the reason I always tell clients to make a $1 Roth IRA contribution the year they start working so they can make sure the five-year clock starts ticking for all future Roth IRAs.
Hence, if one rolls over Roth 401(k) plan funds to a Roth IRA, one would have to wait until they turn 59½ and the Roth IRA has been opened before taking a tax-free distribution of Roth IRA earnings. Whereas, in the case of taking a distribution of just Roth IRA contributions, that can be taken anytime without tax or penalty.
Mega Backdoor Roth 401(k)
A mega backdoor Roth 401(k) is a great strategy for those looking to maximize their Roth 401(k) contributions. To take advantage of this strategy, one must generally be self-employed or own a business with no full-time employees other than the owner(s) or spouse(s) to be eligible to establish a Solo 401(k) plan. Unfortunately, the mega backdoor Roth strategy typically does not work in an employee 401(k) plan because, unless a majority of employees make after-tax contributions, the plan could fail the top-heavy test.
Under the backdoor Roth 401(k) strategy, in 2026, a Solo 401(k) participant may make after-tax contributions up to $72,000, or up to $80,000 if age 50 or older including the standard catch-up contribution. Not all Solo 401(k) plans allow after-tax contributions, so it is important to check with your plan administrator. That means, as long as they have earned at least that amount in compensation from the business, they can make after-tax contributions to the plan. These contributions are not tax-deductible or Roth, but after-tax. By making after-tax contributions, participants are not subject to the standard 20% or 25% profit-sharing limits.
For example, a self-employed Solo 401(k) participant under the age of 50 who earns $80,000 could normally contribute:
- $24,500 in employee deferrals (the 2026 limit)
- 20% of $80,000 = $16,000 in profit-sharing
For a total of $40,500. Using the mega backdoor Roth strategy, the same individual could contribute up to $72,000 in after-tax contributions, or up to $80,000 if over age 50 including the catch-up contribution.
Thanks to IRS Notice 2014-54, pre-tax and after-tax 401(k) funds that are distributed on a pro-rata basis can be separated once a distribution is made, enabling the backdoor Roth 401(k) strategy. A participant can roll after-tax 401(k) contributions directly to an after-tax IRA or Roth IRA without a plan-triggering event. If no earnings have accrued on the after-tax funds at the time of conversion, the rollover to a Roth IRA is tax-free.
Additionally, when after-tax funds are converted to a Roth IRA, the Roth IRA owner can take a tax-free and penalty-free distribution of the converted funds immediately, without waiting five years. This differs from a conversion of pre-tax IRA funds, which is still subject to the five-year rule for amounts converted if under age 59½. Any earnings on Roth IRA contributions remain subject to the five-year and 59½-year rules to secure tax- and penalty-free distributions.
Conclusion
The Roth IRA distribution rules are best understood when focusing on the origin of the Roth IRA funds. The rules for Roth IRA distributions are different for Roth IRA contributions and conversions. In addition, when including the five-year and 59½ age requirement for qualified distributions, determining the tax implications of a Roth IRA distribution can prove tricky even for seasoned tax attorneys. Check out my book about Roth IRAs on Amazon!
Always consult with a financial planner or other professional when navigating the Roth IRA distribution rules. If you have any questions, feel free to reach out to IRA Financial at 800.472.1043.
Pros and Cons of a Self Directed IRA: What to Know
What are the pros and cons of a Self Directed IRA? For decades, retirement investing has centered on a single idea: place your savings into Wall Street products and hope the market delivers. For many investors, that has meant a narrow mix of stocks, bonds, and mutual funds chosen by financial institutions rather than by the account owner. A growing number of Americans are choosing a different path. They are opening Self-Directed IRAs to take direct control of how their retirement savings are invested.
A Self-Directed IRA is not for everyone. It requires engagement, education, and accountability. But for investors who want genuine diversification, access to private markets, and control over their long-term financial future, it can be a powerful tool. Understanding both the advantages and the drawbacks is essential before deciding whether a Self-Directed IRA is right for you.
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What Is a Self-Directed IRA?
A Self-Directed IRA (SDIRA) is an individual retirement account that gives you the freedom to invest beyond traditional, publicly traded securities. From a tax perspective, it works the same as any other IRA. A Traditional SDIRA offers tax-deferred growth. A Roth SDIRA provides the potential for tax-free growth.
What sets a Self-Directed IRA apart is not how the IRS treats the account. It is how your custodian supports your investment choices. Most brokerage firms restrict you to the financial products they offer. A Self-Directed IRA custodian allows you to invest in the full range of assets permitted by law, including real estate, private equity, venture capital, private lending, cryptocurrency, precious metals, hedge funds, and small businesses.
Congress did not intend for IRAs to be limited to Wall Street. When IRAs were created in 1974, the law made no distinction between holding stocks and holding alternative assets. The limitations came later from financial institutions whose business models depend on packaged investment products.
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The Advantages of a Self-Directed IRA
The greatest benefit of a Self-Directed IRA is diversification.
Traditional retirement portfolios are often tied entirely to the stock and bond markets. While public markets can be effective for growth, history shows they are volatile, emotionally challenging, and deeply cyclical. Alternative assets provide an opportunity to diversify across industries, geographies, and economic environments.
Real estate can hedge against inflation. Private credit can generate income. Venture capital can offer exposure to high-growth innovation. Cryptocurrency and blockchain assets can provide asymmetric returns with low correlation to legacy markets. Precious metals can help protect against monetary instability. A Self-Directed IRA makes all of this accessible.
Control is another key advantage.
Instead of relying on a fund manager whose incentives may not align with your long-term goals, you choose where your money goes. You are not limited to prebuilt portfolios or model allocations. You invest in what you understand, which can improve decision-making over time.
For entrepreneurs and business-minded investors, the opportunity is even broader. A Self-Directed IRA allows participation in private markets that were once available only to institutions and high‑net‑worth investors. This includes early-stage companies, real estate syndications, private funds, and specialty investments where above‑market returns may still be achievable.
Tax efficiency also matters.
Alternative investments are often tax-inefficient in a regular brokerage account. Real estate produces rental income. Private loans generate interest. Venture funds can create significant capital gains. Inside an IRA, these earnings grow tax‑deferred or, in a Roth structure, potentially tax‑free. The result is not only stronger performance but better compounding.
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Investing in the Future Instead of the Past
A Self-Directed IRA allows you to invest in emerging trends rather than relying solely on legacy institutions.
Public markets are dominated by companies that have already matured. Private markets, by contrast, are where new industries begin. Many of the most transformative companies in America were once early-stage ventures unavailable to retail investors. While not every investment will succeed, innovation has historically grown faster than tradition.
This ability to allocate toward what comes next can change the path of long-term returns.
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The Disadvantages of a Self-Directed IRA
With freedom comes responsibility.
Liquidity is one of the primary challenges.
Many alternative investments are long-term by design. You may not be able to sell quickly or at predictable prices. This requires planning and patience.
Complexity is another challenge.
Alternative investments demand more due diligence. Unlike public stocks with extensive reporting, private deals vary widely in quality. Investors must evaluate management teams, review financials, and assess risk. This is not a drawback. It is a requirement for responsible investing.
Risk must also be considered.
Some alternative assets carry higher risk than public equities. Venture capital, emerging technologies, and early-stage businesses offer upside but also volatility and the potential for loss. Diversification is essential. A Self-Directed IRA is not about placing a single bet. It is about building exposure across multiple, independent growth engines.
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Why Diversification Is No Longer Optional
Modern finance increasingly recognizes that relying solely on public markets is dangerous.
Larry Fink, CEO of BlackRock, has emphasized that portfolios built only from stocks and bonds are incomplete. In his 2025 letter, he introduced a 50/30/20 model: 50 percent equities, 30 percent fixed income, and 20 percent private or alternative assets such as infrastructure, private credit, or real estate. He argued that the traditional 60/40 allocation, once central to retirement planning, may no longer provide adequate diversification in today’s global environment. Private assets, he noted, can provide inflation protection, reduce volatility, and contribute to long-term stability.
Ray Dalio has stated that diversification is the most important principle for successful investing.
Even Warren Buffett has warned that concentration without understanding is a mistake and that portfolios must be built to survive multiple economic cycles.
The message is consistent. Overreliance on a single system creates vulnerability. A Self-Directed IRA allows you to build something sturdier.
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Why IRA Financial
IRA Financial stands apart because it was built on legal and tax expertise rather than product distribution. Founded by tax attorney Adam Bergman, a nationally recognized authority on self-directed retirement accounts and the author of multiple books on the subject, the firm brings a compliance-first approach to an industry often focused on volume over rigor.
IRA Financial serves more than 27,000 clients nationwide and oversees more than 5 billion dollars in retirement assets. The firm has structured thousands of accounts involving real estate, private funds, cryptocurrency, private equity, and complex partnership arrangements.
What differentiates IRA Financial is not only account setup but ongoing support.
The firm provides annual consulting, compliance services, and tax reporting, including filings related to alternative assets and IRA‑owned LLCs. Clients have direct access to in-house tax professionals who help ensure compliance with IRS prohibited transaction rules, UBIT considerations, and evolving regulations.
IRA Financial does not sell investments. It builds the infrastructure investors need to take control.
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Conclusion
A Self-Directed IRA is not a magic solution, but it is a powerful tool.
It allows you to diversify beyond Wall Street, invest in what you believe in, and shape the future you want to build. But it also requires engagement, education, and the right support.
The real risk is not alternative investing.
The real risk is being confined to a narrow system that may not match your goals, values, or vision.
A Self-Directed IRA gives you a choice. With the right custodian, it gives you control. When structured correctly, investing in alternative assets is not speculation. It is a long-term strategy. In a world that changes faster each year, flexibility is not a luxury. It is a necessity.
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Holding Gold in an IRA or 401(k)
What Precious Metals Are Approved by the IRS for Retirement Account Investing in 2026?
As inflation persists and global markets remain volatile, more Americans are rethinking how to protect long-term wealth. For decades, retirement investing has focused on stocks, bonds, and mutual funds. In 2026, investors increasingly understand that financial markets do not eliminate risk. They often concentrate it. This shift has renewed interest in one of the oldest wealth-preservation tools: precious metals.
When purchased correctly through a Self-Directed IRA or Solo 401(k), precious metals offer tax-advantaged exposure to physical assets that have stored value for centuries. The IRS allows specific metals and coins inside retirement accounts, but strict rules apply. Knowing which metals qualify, how they must be held, and which retirement structure to use can mean the difference between building tax-free protection and triggering a taxable event.
This guide outlines the IRS-approved metals for 2026, explains how they must be stored, and shows how to purchase them properly through a Self-Directed IRA or Solo 401(k).
Why Investors Turn to Precious Metals in Retirement Accounts
Precious metals are not a trend. They are a long-standing hedge against inflation, currency weakness, and financial instability. Gold and silver are not tied to corporate performance or debt. They are physical assets that cannot be diluted by monetary policy.
When held inside a Self-Directed IRA or Solo 401(k), the advantages become even stronger. Growth is either tax deferred or tax free. In Roth structures, appreciation and qualified distributions may be completely tax free. This transforms metals from a defensive hedge into a long-term wealth preservation tool that compounds inside a protected retirement environment.
In an era of rising debt and declining purchasing power, many investors want something real. Precious metals provide that stability.
Physical Metals vs. ETFs and Paper Gold
Not all precious metals exposure is the same.
An ETF may track the price of gold, but it does not give you ownership of actual metal. ETFs are financial instruments that can be restricted, margined, or halted during periods of market stress. They remain tied to the financial system.
Physical metals held inside a retirement account represent direct ownership. Bars and coins stored in a regulated depository are not derivatives or promises. They are property. ETFs may offer convenience, but physical metals provide true diversification for investors concerned about monetary or systemic risk.
What Precious Metals Are IRS Approved in 2026?
The IRS regulates precious metals inside retirement accounts through Internal Revenue Code Section 408(m). While collectibles are generally prohibited, Congress created a clear exception for certain investment-grade metals and coins.
The IRS approves gold, silver, platinum, and palladium if they meet specific purity standards:
- Gold: at least 99.5 percent pure
- Silver: at least 99.9 percent pure
- Platinum and palladium: at least 99.95 percent pure
The IRS also permits certain government-minted coins, including American Gold Eagles, American Silver Eagles, Canadian Maple Leaves, Australian Kangaroos, and Austrian Philharmonics. These coins qualify because they are widely recognized, consistently minted, and meet investment-grade standards.
Bars produced by accredited refiners such as PAMP Suisse or Johnson Matthey are also allowed if they meet purity requirements.
Equally important is understanding what is prohibited. Collectibles, graded coins, rare coins, and numismatic products are disallowed. Any item marketed as exclusive or limited edition is almost always ineligible. If the IRS would treat it as a collectible, it does not belong in a retirement account.
Why You Cannot Store Retirement Metals at Home
One of the most misunderstood rules involves custody.
You may not take personal possession of metals owned by a retirement account. All metals must be held by a qualified U.S. trustee or depository. Storing them at home, keeping them in a personal safe, or holding them through an LLC violates IRS rules.
The federal courts reinforced this in the 2021 case McNulty v. Commissioner. The Tax Court ruled that IRA-owned metals stored personally were treated as distributed, which triggered income tax, penalties, and account disqualification.
The rule is simple. Personal possession equals a taxable distribution.
There are no exceptions in 2026. Metals must remain in an IRS-approved depository under the oversight of a custodian or trustee.
Why Use a Self-Directed IRA for Precious Metals?
Traditional brokerage firms limit accounts to the financial products they administer. They do not custody precious metals.
A Self-Directed IRA removes that barrier. You can purchase IRS-approved metals and store them appropriately under a flat-fee structure. This eliminates product-based conflicts and allows you to select your own dealer.
This distinction is important because many gold IRA companies earn revenue from metal markups rather than account administration. A Self-Directed IRA custodian provides control without selling metals or collecting commissions.
Why Use a Solo 401(k) to Buy Metals?
For self-employed individuals with no full-time employees, a Solo 401(k) can be the most flexible way to hold precious metals.
A Solo 401(k) allows much higher annual contributions than an IRA. It also permits trustee-directed investing, which reduces transaction delays and custodian involvement. This provides speed, lower costs, and greater control.
In addition, a Solo 401(k) offers:
- Higher contribution limits in 2026: 72,000 dollars, 80,000 dollars if age 50 or older, and 83,250 dollars for ages 60 to 63
- Roth mega-backdoor contributions of up to 72,000 dollars for 2026
- Participant loans
- Simplified administration for plans with less than 250,000 dollars
For business owners seeking metals exposure with scale and flexibility, a Solo 401(k) provides significant advantages.
Why IRA Financial Is the Leader in Metal-Based Retirement Strategies
IRA Financial is one of the few firms that focuses exclusively on self-directed retirement accounts and open-architecture Solo 401(k) plans.
Unlike metals dealers, IRA Financial does not sell coins or bullion. Compensation comes from transparent account administration, not metal markups. This removes product conflicts and ensures clients can select reputable third-party dealers.
Founded by tax attorney Adam Bergman, IRA Financial has helped over twenty thousand clients invest in precious metals, real estate, private funds, small businesses, and digital assets. With more than 5 billion dollars under administration, IRA Financial provides in-house tax guidance, legal support, and compliance expertise, all backed by flat-fee pricing.
When you invest in metals, how you buy is just as important as what you buy.
Final Thoughts
Precious metals inside a retirement account are not a short-lived idea. They are a proven strategy for stability and long-term purchasing power. Yet IRS rules are precise. The wrong product, custodian, or storage method can create penalties and undo years of planning.
The opportunity in 2026 is significant, but only when done correctly. With the right structure and a custodian who understands alternative assets, physical metals inside a retirement account provide something financial products cannot: control, permanence, and protection from monetary risk.
Choosing the right Self-Directed IRA custodian is just as important as choosing the metals themselves. A knowledgeable custodian ensures transactions are compliant, storage meets IRS standards, and account administration remains conflict free. When your retirement strategy is supported by the right partner, precious metals become not only an asset you own, but an asset you own correctly.