A vast majority of those investing in a Roth IRA for retirement use mutual funds. But your investments in a Roth IRA do not have to be confined to the stock and bonds that mutual fund companies recommend and purchase for you. What if you had greater control over the investments in your Roth IRA? What if you got to pick which stocks you invested in and when you bought shares? What if could purchase an apartment building inside of your Roth? You can, and it is called a self-directed Roth IRA.

Self-directed IRAs can be set up as Traditional IRAs or as Roths. Once you have either kind, the number of different types of investments you can invest in expands massively. You call the shots with a self-directed IRA instead of a mutual fund manager or other financial planner, which can make these account very appealing to many investors. There are still some rules and these accounts are not for those who are not prepared to take an active role in managing their investments. When you’re in charge, no one else is watching the store to keep you out of trouble.

Understanding the Self-Directed Roth IRA

A self-directed retirement account is exactly what its name implies. The investor—not some fund manager—gets to make all the choices in allocating investments across types and asset classes, and in deciding what to buy and when to sell. And the choices are far wider than stocks and bonds. One of the greatest benefits of self-directed IRAs is that you can invest in categories, such as real estate or partnerships, that can grow during your working years. In retirement, you can use the proceeds with the same freedom you get with a conventional Roth IRA.

If you qualify to own a Roth IRA, you can open a self-directed one. The same income limits  apply, and investors are bound by the same annual contribution limits of $5,500 per person ($6,500 if you’re age 50 or over).

Which Investments Can You Have in a Self-Directed Roth IRA?

There are very few types of investments you are not allowed to hold in a self-directed Roth IRA. In addition to the standard investments—stocks, bonds, cash, money market funds and mutual funds—you can hold assets that are not typically in a retirement portfolio. For example, in a self-directed Roth IRA, you can purchase investment real estate to hold in your account. You can also hold partnerships and tax liens—even a franchise business.

Which Investments Are Out for a Self-Directed Roth IRA?

The Internal Revenue Service (IRS) forbids account holders from holding a few specified investments in self-directed IRAs, both the Roth and Traditional versions. Investors are not allowed to hold life insurance contracts, collectibles and S Corporations in their self-directed retirement accounts. Collectibles include a wide range of items: artwork, baseball cards, memorabilia, jewelry and other objects that are considered collectible and can be bought and sold. Note that this affects the kind of gold that a self-directed Roth IRA can hold. Check with a financial advisor to be sure you are not inadvertently violating any of these rules.


A self-directed retirement account, whether it is a Traditional or Roth IRA, provides you with a wide array of retirement investment options and lots of chances to diversify. When it’s a self-directed Roth IRA, you also have the benefit of the tax-free distributions of a Roth IRA. And you have the ability to manage that account your way.


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