Is a Self-Directed IRA a Good Idea? — Maybe Not!

Okay, you got me on this one.  Is an IRA a bad idea or consideration?  Of course not. Now, ask me if a self-directed IRA is a bad idea or consideration and the water just got murkier.


It is not that a self-directed IRA is bad….I would always choose a self-directed IRA over your standard IRA.  Personally, I do not want to be limited in the investments that my retirement plan can typically invest in….stocks, bonds and mutual funds.

But, one thing people do not fully wrap their mind around is that the rules for entering into a Prohibited Transaction with your IRA is literally a death sentence to your IRA.  Of course, it is attractive to utilize your IRA to invest in any asset not specifically disallowed by IRS rules.  But, that comes with the responsibility of operating your IRA and its investments in compliance with the code.  Failure to do so, subjects your  plan to potentially losing its tax deferred status as a tax-sheltered retirement plan.

So, not being a bummer….but with such imposing penalties associated with mistakes made within your IRA, are there other options one should consider and still self-direct?  Well,


If one qualifies by having their own business with no employees other than a spouse….one should consider a self-directed 401K.  The penalties are significantly less than those of the IRA.  And, that is not even taking into account the benefits of the 401K vs. the IRA.

IRAs….self-directed or not are certainly not bad…but, keep in mind the opportunities associated with your individual 401K plan.  You may find that you will never look at an IRA in the same way again.

This information is provided for educational purposes and is not intended, nor should it be interpreted as, any form of tax, legal, financial or investment advice.  You should always consult with your respective professional.