Adam Bergman

Why I Started a Self-Directed IRA Company: A Tax Lawyer’s Journey to Financial Freedom for Everyday Investors

When people ask me why I started a Self-Directed IRA company, the short answer is simple. I saw a massive disconnect between what the tax code allows Americans to do with their retirement money and what the financial industry actually lets them do.

The real story, however, is far more personal and far more frustrating.

It is a story that begins not in the alternative investment world but in the traditional legal and financial system. I spent years operating at the highest levels and still had no idea that retirement accounts could invest beyond stocks, mutual funds, and Wall Street products. That realization ultimately changed the trajectory of my career. It led me to leave the practice of law and sparked the creation of IRA Financial—a company built to give Americans the freedom Congress intended them to have when retirement accounts were first created.

Today, more than 27,000 investors have used that freedom to take control of over $5 billion in alternative investments through our platform.

But none of that existed when this journey began.

My Background: A Tax Lawyer Who Didn’t Know the Truth About Retirement Investing

Before entering the self-directed retirement space, I was a tax attorney by training and profession. I earned a Master’s in Tax Law (LL.M. in Taxation) and spent years working at some of the largest and most prestigious law firms in the world. My focus was tax. Complex structures, compliance, regulations, and planning. I worked with sophisticated clients, major financial institutions, and high-net-worth individuals. And yet, despite operating at that level of the financial and legal system, I had never been taught, nor had I ever encountered the idea that an IRA or 401(k) could invest in alternative assets like:

• Real estate
• Private equity
• Venture capital
• Hedge funds
• Private businesses
• Precious metals
• Tax liens
• Even cryptocurrency

Looking back, that realization still shocks me. How could someone who spent nearly a decade practicing tax law not know something that was clearly permitted under the Internal Revenue Code?

The answer, as I would later learn, is simple. The system was never designed to promote investor freedom. It was designed to promote asset gathering.

The Moment Everything Changed

In my eighth-year practicing as a tax lawyer, a partner at the firm asked me to research whether a client, who happened to be a partner at a large hedge fund, could use his IRA to invest in his own fund. This seemed like a narrow, technical question. But it would change my career. I remember sitting in the firm’s library researching the issue. After digging through shelves of tax materials, I found only a single detailed tax treatise discussing the tax treatment of retirement funds and alternative investments. Just one. That alone was surprising.

But what truly shocked me was what the research revealed. Yes, retirement accounts can invest in alternative assets. And not only could they invest in them, but the restrictions were also actually relatively limited.

As long as you avoided:

• Prohibited transactions under IRC Section 4975
• Investments in life insurance for IRAs
• Collectibles
• Dealings with “disqualified persons” such as yourself, your spouse, lineal ascendants or descendants, or entities they control

You had enormous flexibility. I remember being blown away. Here I was, a tax lawyer at a global firm, and I had just discovered that retirement accounts were far more powerful than anything Wall Street had ever explained.

The Second Shock: My Own Money Was “Not Allowed” to Do What the Tax Code Permitted

After learning this, I did what any rational investor would do. I asked my financial advisor if I could use funds from a former employer 401(k) to invest in a real estate opportunity my friends were involved in.

His answer was immediate. “No.”

He explained that the platform they used, at the time Fidelity, did not allow investments into that type of deal. That made absolutely no sense to me. The tax code clearly permitted it. ERISA never restricted retirement accounts to stocks. Congress never said retirement investors were limited to mutual funds.

So why was I being told I couldn’t do it? The answer was not risk. It was business model.

Large financial institutions generate revenue from:

• Assets under management (AUM) fees
• Proprietary products
• Revenue sharing
• Trading spreads
• Managed portfolios

Alternative assets do not fit neatly into that structure. And because they are harder to custody, harder to scale, and less profitable, they were simply excluded from most platforms. Not because investors were prohibited. Because investors were inconvenient. That realization was the moment everything clicked.

Discovering the Self-Directed IRA Industry and Its Problems

Once I understood that retirement funds could legally invest in alternative assets, I began researching companies that offered self-directed retirement services. What I found was deeply disappointing.

Many providers:

• Charged excessive fees
• Offered limited support
• Provided almost no investor education
• Did not help with ongoing compliance
• Left clients to figure out IRS reporting on their own

In many cases, investors were paying high custodial fees for very little value. As a tax lawyer, this was alarming.

Self-directed retirement accounts involve:

• Prohibited transaction rules
• UBIT considerations
• Reporting obligations
• Structuring issues

Yet investors were being handed complex tools with almost no guidance. It was clear the industry was built for transactions, not for long-term investor success.

The Big Realization: Congress Intended Retirement Freedom

As I dug deeper into the legislative history, something became crystal clear. When retirement accounts were established under ERISA in 1974, Congress did not distinguish between:

• Accounts that invested in stocks
• Accounts that invested in alternative assets

If lawmakers wanted to restrict retirement accounts to Wall Street products, they easily could have. They did exactly that with 529 plans. But they didn’t do it with IRAs or 401(k)s.

Instead, Congress placed only a handful of guardrails:

• No life insurance in IRAs
• No collectibles
• No prohibited transactions with disqualified persons
• Certain rules around leverage (UDFI)

That’s it. Why?

Because Congress understood:

• The importance of diversification
• The value of private investment
• The potential for alternative assets to generate alpha
• The need for Americans to build long-term wealth outside traditional markets

The intent was freedom with reasonable safeguards. Somewhere along the way, the financial industry replaced that freedom with convenience and profit.

Leaving Law to Build Something Better

At that point, I faced a decision. Continue practicing tax law at a large firm or build something that solved this problem. I chose the harder path. I left legal practice and spent the next year developing the business plan that would become IRA Financial.

The mission was simple but powerful:

Give Americans the ability to invest their retirement money the way the tax code actually allows.

But I wanted to do it differently.

The Problem IRA Financial Was Created to Solve

The problem wasn’t that retirement accounts couldn’t invest in alternatives.

The problem was that:

• Most investors didn’t know they could
• Most platforms didn’t allow it
• Existing providers were expensive and outdated
• Compliance support was minimal
• Education was almost nonexistent

In other words, the system was stacked against investor control. Americans were being told, “You can only invest in what we offer.” That was never the intent of retirement law. IRA Financial was built to change that.

A New Model: One IRA, Every Investment, One Flat Fee

From day one, the vision was to create a retirement platform that:

• Allowed investment in all IRS-approved assets
• Charged one simple flat fee
• Provided education and support
• Included ongoing tax and compliance services
• Made the process easy and accessible

No AUM fees. No hidden transaction costs. No platform bias toward proprietary products. Just freedom within the rules. The goal was to let investors focus on investing, not paperwork.

Why the Big Institutions Don’t Offer This

Many people assume that firms like Fidelity or Schwab restrict alternatives because they are too risky. In reality, the primary issue is economics.

Their platforms are designed around:

• Scalable securities
• Managed accounts
• Fee-based portfolios
• Product distribution

Alternative assets disrupt that model.

They are:

• Illiquid
• Customized
• Operationally intensive
• Harder to monetize

So they are simply excluded. Not because investors shouldn’t have access, but because they don’t fit the profit structure. IRA Financial was built specifically to solve that gap.

The Impact: 27,000+ Investors and Over $5 Billion in Alternatives

What started as a legal insight has become a movement.

Today, more than 27,000 investors have used IRA Financial to:

• Invest in real estate
• Fund private companies
• Participate in venture deals
• Hold precious metals
• Allocate to digital assets
• Lend money privately
• Build diversified portfolios beyond Wall Street

Collectively, our clients have invested over $5 billion into alternative assets. These are not just institutions or ultra-wealthy families.

They are:

• Small business owners
• Doctors
• Engineers
• Entrepreneurs
• Real estate investors
• Everyday Americans

People who simply wanted control over their own retirement future.

Why This Matters More Than Ever

We are living in a world where public markets are increasingly concentrated, private markets capture much of the early growth, unicorn companies stay private longer, real estate remains a core wealth builder, and inflation continues to reshape how portfolios are constructed. Limiting retirement investors to only stocks and mutual funds no longer reflects how wealth is actually created. Alternative assets are not a luxury. They are a necessity for true diversification, which is exactly what Congress envisioned decades ago.

The Bigger Mission: Financial Freedom Through Education and Compliance

One of the biggest mistakes early SDIRA providers made was assuming investors could figure out the rules themselves. As a tax lawyer, I knew that wasn’t realistic.

That’s why IRA Financial was built with a strong emphasis on education, compliance, tax reporting, and ongoing support. Our goal was not just to provide access but to provide confidence. Investors should never have to choose between opportunity and compliance. They should have both.

Why I Started This Company

I did not start a Self-Directed IRA company simply to build another financial services business. I started it because I wanted to fundamentally disrupt the way retirement investing was being done in America.

What I discovered early in my career was deeply troubling. Millions of Americans were being unknowingly denied investment freedom that the tax code had already given them decades earlier. The law clearly allowed retirement accounts to invest in a wide range of assets, yet the traditional financial system had quietly narrowed those choices to a small menu of products that primarily benefited the institutions offering them.

As I looked closer, I realized the problem was not just one issue. It was several layered on top of each other. There was a massive knowledge gap, where investors simply were never told what their retirement accounts were actually allowed to do. There was a platform gap, where most large financial institutions did not offer the infrastructure needed to hold alternative assets. There was a service gap, where the few providers that did exist often failed to offer meaningful education, compliance support, or guidance. And perhaps most concerning, there was a trust gap, where investors were led to believe that limited choices were the result of risk or regulation, when in many cases they were the result of business models and profit incentives.

I believed this system could and should be fixed.

That belief is what led to the creation of IRA Financial. The mission from day one was to restore the original intent behind retirement accounts as envisioned by Congress: to give Americans true control over how their retirement savings are invested.

At its core, IRA Financial was built around a simple but powerful idea. Retirement investors should have the freedom to invest in what they know, the freedom to diversify beyond traditional markets, and the freedom to build long-term wealth on their own terms within the rules that already exist.

The Bottom Line

When I first discovered that retirement accounts could invest in alternative assets, I was shocked. I realized most Americans were being prevented from doing so, not by law but by industry structure. This was frustrating. And when I saw how poorly the existing solutions served investors, I knew something had to change. So I left the legal world and built a company dedicated to giving retirement investors the control they deserve.

Today, tens of thousands of investors have taken back that control. And the mission remains the same as it was on day one:

Empower Americans to invest their retirement savings in everything the IRS allows, not just what Wall Street wants to sell them.

---

by Adam Bergman

How to Transfer Your IRA to a Self Directed IRA at IRA Financial

At some point, many retirement investors realize they’ve outgrown the limitations of a traditional brokerage IRA and start researching how to transfer your IRA to a self-directed IRA to gain more investment control. Maybe you want to invest in real estate. Maybe it’s private equity or cryptocurrency. Or maybe you simply want the flexibility to move faster and make decisions on your own terms.

When that moment comes, transferring your IRA to a Self-Directed IRA is often the first step toward taking real control of your retirement strategy.

The good news is this: transferring an IRA to IRA Financial is straightforward and tax-free when structured properly. In most cases, the entire transfer can be completed without triggering taxes, penalties, or limitations. And most importantly, our team handles the heavy lifting from start to finish.

Understanding IRA Transfers and Why They Are So Flexible

One of the biggest advantages of IRAs, especially when compared to employer-sponsored plans, is flexibility. Under IRS guidelines, you can move assets from one IRA custodian to another at any time and without limitation, as long as the transfer is structured correctly.

A properly executed direct IRA transfer is not a taxable event because the funds never pass through your hands.

Unlike 401(k) rollovers, IRA transfers typically do not require a triggering event such as leaving your job or reaching a certain age. That flexibility gives you the ability to reposition your retirement funds whenever your investment strategy evolves.

Tax Treatment of IRA Transfers

One of the biggest concerns investors have is taxes. Let me be clear: when done as a direct trustee-to-trustee transfer, the movement of funds is generally not taxable.

In a direct transfer, your current IRA custodian sends the funds directly to the new custodian. Because you never take possession of the money, the IRS does not treat it as a distribution. That means no income tax, no early withdrawal penalty, and no withholding.

Direct IRA transfers can also be completed an unlimited number of times each year. This gives you flexibility to reposition assets as your strategy changes.

This is very different from an indirect rollover, which involves stricter rules. Indirect rollovers come with a 60-day redeposit requirement and are limited to once per year across all IRAs. If you miss the deadline, the tax consequences can be significant.

When structured as a direct transfer, you preserve the tax-advantaged status of your retirement account while transitioning seamlessly to a Self-Directed IRA platform like IRA Financial.

Direct vs. Indirect Transfers: What You Need to Know

There are two primary ways to move IRA funds. In my experience, most investors choose the direct method because it's cleaner, safer, and more efficient.

Direct IRA Transfer: The Preferred Method

A direct trustee-to-trustee transfer moves assets straight from your current custodian to IRA Financial without you ever touching the funds.

Because the assets stay within the retirement system, the transfer is typically tax-free and can be done multiple times throughout the year.

This is the process we specialize in. Once your account is opened, we initiate the transfer directly with your existing custodian, monitor the process, and notify you when the funds arrive.

Indirect Transfer: Use With Caution

An indirect transfer means the funds are distributed to you personally, and you then have 60 days to redeposit them into another IRA.

While this method is permitted, it carries additional risk. If you miss the 60-day window, the IRS may treat the amount as a taxable distribution, potentially subject to penalties. Indirect IRA transfers are also limited to once every twelve months across all IRAs.

For most investors, the direct transfer is the smarter path.

IRA Financial’s Onboarding and Transfer Process: We Handle the Heavy Lifting

One of the biggest misconceptions I hear is that transferring an IRA must be complicated or time-consuming. It does not have to be.

We built our onboarding experience to remove friction and make opening and funding a Self-Directed IRA efficient and straightforward. In many cases, the initial setup takes just minutes.

The process begins with a secure online application. You select your account type, whether that is a Traditional IRA, Roth IRA, SEP IRA, or another eligible structure, and provide basic information about your existing account. Our digital workflow allows accounts to be established without unnecessary paperwork delays.

Once your account is open, our team takes the lead. We prepare and submit the trustee-to-trustee transfer request directly to your current custodian. You are not left coordinating between institutions or chasing documents. We manage the paperwork, follow up with the outgoing custodian, and track the transfer until funding is complete.

Because the movement is structured as a direct custodian-to-custodian transfer, the funds never pass through you. That eliminates withholding issues and avoids early distribution penalties. It also allows you to complete multiple transfers during the year if you choose to reposition assets in stages.

We also help you think through the strategy. That includes account titling, funding timing, and preparing for alternative investments once the funds arrive. For investors coming from traditional brokerage IRAs, this planning is especially important if assets need to be liquidated prior to transfer.

The scale of our transfer experience reflects the efficiency of this system. In 2026 alone, IRA Financial facilitated more than $2 billion in tax-free retirement fund transfers into and out of the platform. That kind of volume only happens when a process is structured correctly and executed consistently.

Our goal is simple. We want the transfer to feel like a guided transition, not an administrative burden. You stay informed and in control, while we manage the operational details from start to finish.

Why Investors Transfer to a Self-Directed IRA

Most investors transfer their IRA when they recognize the limitations of traditional brokerage platforms.

A Self-Directed IRA through IRA Financial allows you to maintain the tax advantages of your retirement account while diversifying into alternative assets.

Common reasons for transferring include:

• Access to real estate and private investments
• Cryptocurrency and digital asset exposure
• Private lending and investment funds
• Greater control and faster execution

Unlike providers that focus on just one asset class, IRA Financial allows you to hold multiple types of alternative investments within a single account. That flexibility matters when you are building a long-term, diversified strategy.

IRA Transfers vs. 401(k) Rollovers

It's important to understand the distinction between IRA transfers and 401(k) rollovers.

IRAs can generally be transferred at any time. In contrast, 401(k) assets usually require a triggering event, such as separation from employment or reaching age 59½, before funds can be moved.

That difference is why IRA transfers are often the simplest and most flexible way to reposition retirement assets.

Conclusion

Transferring your IRA to IRA Financial is designed to be straightforward, tax-efficient, and stress-free. When structured as a direct transfer, the move can be completed without taxes, penalties, or annual limits.

If your investment goals have evolved, your retirement account should evolve with them. With a streamlined onboarding process and a team that manages every step, from initiating the transfer to coordinating with your current custodian, IRA Financial makes it easier to take control of your retirement strategy and invest beyond the limits of a traditional brokerage IRA.

---

by Adam Bergman

Secret Ways to Eliminate UBIT for Your Self-Directed IRA Investment

For investors using a Self-Directed IRA, few topics create more confusion or unnecessary fear than unrelated business income tax, also known as UBIT or UBTI. You may have heard that investing in private businesses, real estate with leverage, or LLCs inside an IRA automatically triggers punitive taxes. Others are told that UBIT makes alternative investments not worth it inside a retirement account.

The truth is far more nuanced.

UBIT is real. But it is also manageable, predictable, and in many cases avoidable with proper structuring. In fact, some of the most sophisticated Self-Directed IRA investors intentionally invest in opportunities that generate UBIT because the long-term benefits still outweigh the tax cost, or because planning strategies can significantly reduce or offset the impact.

In this article, I am going to walk you through how UBIT really works, why it applies to certain Self-Directed IRA investments, and the little-understood strategies experienced investors use to minimize or neutralize it, including a powerful tax distribution strategy most IRA investors have never heard of.

Why You Need a Self-Directed IRA to Make Private Investments

A traditional brokerage IRA limits you to publicly traded investments such as stocks, ETFs, mutual funds, and bonds. If you want to invest in private companies, real estate, private equity, private lending, cryptocurrency, or closely held businesses, a standard IRA simply will not allow it.

That is where a Self-Directed IRA, or SDIRA, comes in.

A Self-Directed IRA is not a different type of IRA under the tax code. It is a structural difference that allows the IRA to invest in non-traditional assets that are otherwise unavailable at brokerage firms. The tax advantages of an IRA remain intact. Traditional IRAs grow tax-deferred. Roth IRAs grow tax-free. What changes is the investment flexibility.

Without a Self-Directed IRA, it is simply not possible to make most private investments using retirement funds.

Self-Directed IRAs Are Available for All IRA Types

One common misconception is that Self-Directed IRAs are limited to niche investors or special account types. In reality, almost every IRA can be self-directed, including:

• Traditional IRAs
• Roth IRAs
• SEP IRAs
• SIMPLE IRAs
• Rollover IRAs from former employer plans

The rules governing contributions, distributions, and taxation do not change. What changes is how the IRA is allowed to invest and who provides custodial and administrative support.

Because Self-Directed IRAs allow more complex investments, they require specialized administration and compliance oversight. That is why most traditional brokers do not offer them.

What You Can and Cannot Invest in With a Self-Directed IRA

The IRS does not publish a list of approved investments for IRAs. Instead, it provides a short list of prohibited investments and prohibited transactions, primarily found in Internal Revenue Code Section 4975.

Common Permitted Self-Directed IRA Investments

• Real estate, including residential, commercial, and raw land
• Private equity and private placements
• LLC and partnership interests
• Private lending and notes
• Cryptocurrency and digital assets
• Precious metals that meet IRS purity rules

Prohibited Transactions Under IRC 4975

The biggest risk is not the asset itself. It is who the IRA transacts with.

Your IRA may not transact with:

• You personally
• Your spouse
• Your parents, grandparents, children, or grandchildren
• Entities owned or controlled by those people

Prohibited transactions include:

• Self-dealing
• Providing services to the IRA
• Using IRA assets for personal benefit

Violating these rules can disqualify the IRA, which makes compliance absolutely critical.

What Is UBIT and How It Applies to Self-Directed IRA Investments

Unrelated Business Income Tax (UBIT) applies when a tax-exempt entity, including an IRA, earns income from an active trade or business that is unrelated to its exempt purpose.

IRAs are tax-advantaged. They are not immune from UBIT.

UBIT generally applies when an IRA:

• Invests in an operating business, not passive investing, or
• Uses leverage, meaning debt, to generate income

The income subject to UBIT is referred to as Unrelated Business Taxable Income (UBTI).

UBIT vs. UDFI: Understanding the Difference

While often used interchangeably, UBIT, UBTI, and UDFI are not the same.

UBTI

UBTI is income generated from:

• An operating business, such as an LLC running a restaurant or software company
• Active business income passed through to the IRA

UDFI

Unrelated Debt-Financed Income (UDFI) applies when:

• An IRA invests in real estate or another asset using debt, and
• The debt is non-recourse, which is required for IRAs

Only the portion of income attributable to leverage is subject to tax.

In simple terms:

• UBTI is operating business income.
• UDFI is leverage-driven income.

UBIT Tax Rates Explained

Income subject to UBIT is taxed at federal trust tax rates, not individual income tax rates. These rates are highly compressed. The highest federal tax rate of 37 percent applies once taxable UBTI exceeds roughly 15,000 dollars in a given year. By comparison, individual taxpayers do not reach the top marginal rate until hundreds of thousands of dollars of income.

Because an IRA reaches the top trust tax bracket so quickly, even a relatively modest amount of Unrelated Business Taxable Income can be taxed at the maximum rate. That is why thoughtful structuring and cash-flow planning, such as blocker corporations or tax distribution provisions, is essential when making Self-Directed IRA investments that generate UBIT.

The Tax Impact of UBIT: Real Examples

Example 1: Leveraged Real Estate in a Self-Directed IRA

An IRA buys a rental property for 500,000 dollars using:

• 250,000 dollars in cash
• 250,000 dollars through a non-recourse loan

If the property generates 100,000 dollars of net income, approximately 50 percent may be subject to UDFI, depending on the debt ratio.

That portion is taxed at trust tax rates, which reach the highest federal bracket quickly.

Example 2: Investing in an Operating Business LLC

An IRA invests in an LLC operating a business, for example manufacturing, services, or technology. The LLC generates 200,000 dollars of profit, of which the IRA is allocated 50,000 dollars.

That 50,000 dollars is UBTI and subject to UBIT, even if the cash is not distributed.

This is where planning becomes critical.

Common Strategies to Reduce or Block UBIT

1. C-Corporation Blocker Structure

The most common UBIT mitigation strategy is a C-corporation blocker.

In this structure:

• The IRA invests in a C-corporation
• The C-corporation pays corporate income tax
• Dividends paid to the IRA are generally exempt from UBIT

This does not eliminate tax. It converts UBIT into corporate tax at a rate of 21 percent, which is significantly lower than the maximum UBIT rate of 37 percent. For some investments, this creates predictability and long-term efficiency.

2. The Section 514(c)(9) Exception for Solo 401(k)s

Under Internal Revenue Code Section 514(c)(9), a Solo 401(k), unlike an IRA, can avoid UDFI on real estate leverage if the loan is non-recourse and properly structured.

• Applies to Solo 401(k) plans
• Does not apply to IRAs
• Applies to real estate acquisition indebtedness

This is one reason many real estate investors prefer Solo 401(k)s.

However, it does not help IRA investors directly.

The Little-Known Tax Distribution Strategy

This is one of the most misunderstood and powerful planning concepts for Self-Directed IRA investors in private businesses.

What Is a Tax Distribution?

A tax distribution is a provision commonly found in LLC operating agreements. It requires the LLC to distribute cash to members solely to cover taxes owed on allocated income or net profits when no corresponding cash distribution is otherwise made.

Tax distributions are typically:

• Calculated at the highest marginal federal tax rate
• Paid even if profits are retained in the business

This concept is standard in private equity and closely held businesses, but it is rarely discussed in the IRA context.

How a Tax Distribution Can Neutralize UBIT

Example

• An IRA owns 20 percent of an operating LLC.
• The LLC allocates 100,000 dollars of profit to the IRA.
• The IRA owes UBIT on that income.
• The operating agreement requires a tax distribution equal to the estimated tax liability, calculated at 37 percent of 20,000 dollars.
• The LLC distributes cash to the IRA specifically to cover the UBIT owed.

The IRA still files Form 990-T and pays the tax. But the economic burden is effectively eliminated because the cash used to pay the tax comes from the investment itself.

This strategy:

• Does not avoid UBIT
• Does not violate IRA rules
• Is fully consistent with private business operating agreements

Yet it is rarely explained to IRA investors, custodians, or sponsors.

Why This Strategy Is Often Overlooked

Most Self-Directed IRA discussions focus on avoiding UBIT entirely instead of managing it intelligently.

• Investors walk away from strong private deals unnecessarily
• Sponsors incorrectly assume IRAs cannot invest efficiently
• Advisors fail to coordinate operating agreements with IRA tax realities

When structured properly, UBIT becomes a known and manageable variable, not a deal killer.

Conclusion: UBIT Is a Planning Issue, Not a Barrier

UBIT is not a reason to avoid Self-Directed IRA investing. It is a reason to structure investments correctly.

• You can invest in private businesses using your IRA
• You can understand when UBIT applies and when it does not
• You can use blocker structures or tax distributions strategically
• You can turn UBIT from a surprise into a planned, tax-neutral outcome

For investors willing to look beyond surface-level explanations, Self-Directed IRAs remain one of the most powerful tools for building long-term, tax-advantaged wealth, even in complex private investments.

---

by Adam Bergman

Why Every American Should Have a Self-Directed IRA

When most Americans think about retirement savings, they picture a simple choice: stocks, bonds, or mutual funds managed by a financial advisor at a big-name brokerage. For decades, this narrow approach has been framed as the only responsible way to invest for retirement. But what if the real path to financial independence has been available all along, hidden in plain sight within the tax code?

The truth is that the wealthiest investors in America have been using a very different playbook. They diversify beyond Wall Street’s offerings by investing in real estate, private companies, cryptocurrency, precious metals, and opportunities most people never see. They are not breaking any rules. They are simply using retirement accounts the way Congress originally intended when Individual Retirement Accounts were created in 1974.

That tool is called a Self-Directed IRA, and it may be the most underutilized wealth-building strategy in American finance. If you are serious about taking control of your financial future, understanding how Self-Directed IRAs work is not just helpful. It is essential.

What Is a Self-Directed IRA?

A Self-Directed IRA is not a special type of retirement account. It is a standard IRA held by a custodian that allows you to invest in assets beyond traditional stocks and bonds. The term “self-directed” simply means you make the investment decisions instead of a financial advisor or brokerage firm.

Here is what most people do not realize. The Internal Revenue Code places very few restrictions on what you can hold inside an IRA. The IRS does not require you to invest only in publicly traded securities. That limitation comes from your custodian.

Traditional brokerages restrict your choices because they profit from selling their own financial products. They want you investing in mutual funds, ETFs, and managed portfolios because that is how they earn fees.

A Self-Directed IRA removes those artificial barriers. With the right custodian, you can invest in real estate, private equity, venture capital, tax liens, promissory notes, cryptocurrency, precious metals, and virtually any asset not explicitly prohibited by the IRS. The only assets you cannot hold are life insurance contracts, collectibles such as art or antiques, and S corporation stock.

This is the same retirement account structure used by pension funds, university endowments, and family offices. The difference is access. For too long, alternative investments were reserved for institutions and the ultra-wealthy. A Self-Directed IRA opens that door to everyday investors.

The Tax Advantages Are Unmatched

The real power of a Self-Directed IRA comes from combining alternative investments with the tax advantages built into retirement accounts. That combination can be transformative.

In a Traditional Self-Directed IRA, your contributions may be tax-deductible, and all investment gains grow tax-deferred. You pay no taxes on rental income, capital gains, or dividends until you take distributions in retirement. This allows your wealth to compound without the drag of annual taxation.

Consider a $100,000 investment that grows to $200,000. That $100,000 gain, if held personally, could trigger $20,000 to $30,000 in capital gains taxes. Inside a Traditional IRA, you owe nothing until withdrawal, and those funds continue working for you.

Even more powerful is the Roth Self-Directed IRA. With a Roth IRA, you contribute after-tax dollars, but all future growth is completely tax-free if you follow the rules.

Imagine purchasing a rental property for $150,000 inside a Roth IRA. Over 20 years, the property appreciates to $400,000 and generates $200,000 in rental income. When you retire, you can withdraw the full $650,000 without paying a single dollar in federal income tax. No capital gains tax. No ordinary income tax.

This is not a loophole. It is the law. Congress designed retirement accounts to encourage long-term savings, and those tax benefits apply whether you invest in Apple stock or an apartment building.

The wealthy understand this. Peter Thiel famously used a Roth IRA to invest in PayPal and Facebook at their earliest stages, turning a few thousand dollars into billions, completely tax-free. That same structure is available to any American willing to learn how it works.

Investment Advantages Beyond Wall Street

Self-Directed IRAs provide access to investments most brokerage accounts will never offer. These alternative assets often deliver advantages traditional securities cannot.

Real estate is the most popular alternative investment for a reason. Unlike stocks, real estate generates monthly cash flow through rental income. It is a tangible asset that tends to rise with inflation. When held inside an IRA, all rental income flows back into your retirement account tax-deferred or tax-free.

Private equity and venture capital allow you to invest in businesses before they go public. Early-stage companies offer the potential for exponential returns that public markets rarely deliver. If you have expertise in a specific industry, you can put that knowledge to work by investing where you understand the risks and opportunities.

Cryptocurrency has become one of the fastest-growing asset classes in history. With a Self-Directed IRA, you can hold Bitcoin, Ethereum, and other digital assets while deferring or eliminating taxes on gains. Given crypto’s volatility and upside potential, the tax shelter provided by an IRA can be incredibly valuable.

Precious metals such as gold and silver offer protection during periods of economic uncertainty. Because they are not directly correlated with the stock market, they serve as effective portfolio diversifiers.

Promissory notes and hard money lending allow you to act as the bank. You earn interest on loans secured by real estate or other collateral. Many Self-Directed IRA investors generate steady returns by funding real estate projects or providing capital to small businesses.

The real advantage is choice. You are no longer limited to what a brokerage wants to sell you. You can invest in what you know, what you understand, and what aligns with your long-term goals.

The Power of Diversification and Alternative Assets

Professional investors have always understood that true diversification means more than owning a mix of stocks and bonds. It means spreading risk across asset classes that do not move in lockstep.

When the stock market crashes, real estate does not always follow. When inflation rises, precious metals often gain value while bonds lose purchasing power. When public markets stagnate, private equity deals can still deliver strong returns. This concept, known as low correlation, is the foundation of institutional portfolio management.

University endowments at Harvard, Yale, and Stanford regularly allocate 60 to 80 percent of their portfolios to alternative investments. They invest in private equity, venture capital, real estate, hedge funds, and commodities because they understand that alternatives can outperform public markets over long time horizons while reducing overall volatility.

The average American, however, is often told to place everything into a stock and bond portfolio managed by a financial advisor earning commissions on those products. That approach worked reasonably well during the long bull market from 1980 to 2020. Today, with inflation, rising interest rates, and increased volatility, relying entirely on Wall Street carries more risk than ever.

A Self-Directed IRA gives you access to the same diversification tools used by institutions and billionaires. You can hold stocks for growth, real estate for income, precious metals for protection, and private investments for outsized returns, all within one tax-advantaged account.

How the Wealthy Use Alternatives to Create Alpha

Alpha is the investment term for returns that exceed market benchmarks. While the S&P 500 might average 10 percent annually over time, alpha is the additional return generated through better access, timing, or investment selection.

The wealthy create alpha by investing in assets most people never see. They participate in private placements before companies go public. They buy distressed real estate at below-market prices. They fund early-stage businesses in industries they understand deeply. They lend money at high interest rates secured by real assets.

Peter Thiel’s Roth IRA is the most well-known example. By investing in PayPal and Facebook at fractions of a penny per share, he turned a few thousand dollars into more than $5 billion, tax-free. Mitt Romney built a nine-figure IRA through private equity investments made during his time at Bain Capital. These are not flukes. They are proof that the structure works.

You do not need to be a billionaire to follow this playbook. A real estate investor can buy rental properties inside a Self-Directed IRA and generate tax-advantaged cash flow. An entrepreneur can invest in private businesses within their field of expertise. A crypto investor who bought Bitcoin at $10,000 inside a Roth IRA and saw it rise to $60,000 owes zero taxes on that gain.

The difference is not just money. It is knowledge and access. A Self-Directed IRA provides the access. The knowledge is yours to build.

How to Set Up a Self-Directed IRA

Opening a Self-Directed IRA is straightforward, but choosing the right custodian and structure matters.

Step 1: Choose a Self-Directed IRA Custodian

Not all custodians allow alternative investments. You need a provider with experience handling real estate, private placements, cryptocurrency, and other non-traditional assets. The custodian holds your assets, processes transactions, and ensures IRS compliance. They do not provide investment advice.

Step 2: Open Your Account

You complete an application and provide identification. The custodian establishes your Self-Directed IRA and issues an account number, usually within a few days.

Step 3: Fund Your Account

You can fund your account through contributions, transfers, or rollovers. Existing IRAs or 401(k)s can be moved into a Self-Directed IRA without triggering taxes or penalties. Contribution limits apply only to new contributions, not rollovers.

Step 4: Make Investments

Once funded, you direct the custodian to invest on behalf of your IRA. For real estate purchases, the custodian signs the contract and takes title in the name of the IRA. All expenses are paid from IRA funds, and all income flows back into the IRA.

In many cases, the entire process can be completed in as little as a week.

Two Types of Self-Directed IRAs: Full Service vs. Checkbook Control

There are two primary ways to manage a Self-Directed IRA.

Full-Service Self-Directed IRA

With this structure, the custodian holds all assets and processes each transaction. This approach works well for passive investments, such as private placements or precious metals. The trade-off is speed and cost. Every transaction requires approval and may involve fees.

Checkbook Control (Self-Directed IRA LLC)

Checkbook control provides direct authority over your retirement funds by using an LLC owned by your IRA. You serve as the manager, and the LLC maintains its own bank account. This allows you to move quickly without custodian approval for each transaction.

This structure is ideal for active investors, especially real estate investors who need to pay contractors, close deals quickly, or invest at auction. It maintains IRS compliance while offering operational flexibility and eliminating per-transaction fees.

---

by Adam Bergman