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.

Why IRA Financial Is the Right Partner

Choosing a Self-Directed IRA provider is not just about opening an account. It is about selecting a long-term partner who understands IRS rules and alternative investments.

IRA Financial was founded by Adam Bergman, a tax attorney and nationally recognized expert in Self-Directed retirement planning. He has authored nine books on the subject and helped more than 27,000 clients invest over $5 billion in alternative assets.

What sets IRA Financial apart is experience, education, and a compliance-first approach. The firm specializes in checkbook control structures and understands prohibited transaction rules, IRA-owned LLCs, and UBIT exposure at a deep level.

Self-Directed IRAs come with rules, and mistakes can be costly. Improper structuring or prohibited transactions can disqualify an entire IRA. IRA Financial’s team of tax attorneys and ERISA specialists helps clients avoid those pitfalls before they occur.

This is not a discount brokerage offering self-direction as a side product. It is a firm built specifically for investors who want control, flexibility, and compliance.

Why Every American Should Have a Self-Directed IRA

The case for a Self-Directed IRA comes down to three things: control, opportunity, and tax efficiency.

A Self-Directed IRA puts you in control. Instead of accepting a limited menu of investments, you gain access to the same alternatives used by institutions and wealthy investors.

The investment opportunities are simply broader. Real estate, private equity, cryptocurrency, and precious metals provide income, diversification, and growth potential that traditional portfolios often lack.

The tax advantages are extraordinary. Whether through tax-deferred growth in a Traditional IRA or tax-free returns in a Roth IRA, compounding without annual taxation is one of the most powerful wealth-building tools available.

The wealthiest Americans have used this strategy for decades. It is not a secret, and it is not reserved for the elite. It is written into the tax code.

The traditional retirement model of contributing to a 401(k), buying index funds, and hoping for the best is no longer enough. Market volatility, inflation, and economic uncertainty demand a better approach.

A Self-Directed IRA is more than a retirement account. It is a financial operating system that gives you the freedom to invest in what you know, the tools to build real wealth, and the tax advantages to keep that wealth working for decades. If you are serious about financial independence, opening a Self-Directed IRA is the logical first step.