Self Directed Roth IRAs

A self directed Roth IRA could be a good choice, but you've got to be careful: there are a lot of "sharks" in those waters. Many custodians charge high fees and/or run fraudulent investment schemes. And be wary of risky, non-diversified investments that may not be appropriate for your hard earned retirement dollars.

Before investing in one, you must read this short article published by the Securities and Exchange Commission: Investor Alert: Self-Directed IRAs and the Risk of Fraud.

The IRS rules governing self directed Roth IRAs aren’t so much complex as vague. Life insurance and collectibles are specifically disallowed, as are specific types of transactions, but beyond that there is not much guidance.

This has led to some creative Roth IRA investment solutions by enterprising IRA custodian/trustees over the years. The problem is many have later been disallowed by the IRS. That triggers a liquidation and subsequent distribution as of the first year of the investment, and all tax and early withdrawal penalties apply.

You can set up a self-directed traditional IRA as well – the same rules apply. The only difference is qualified distributions from a self-directed traditional IRA are taxable while qualified distributions from a self directed Roth IRA are tax free.


A Roth IRA LLC is not an investment. It’s a popular ownership structure where a limited liability company (LLC) is formed. The LLC is owned by the self directed IRA, and the IRA is cared for by the custodian, who you’ll need to hire to look after things per IRS rules.

Besides limiting the amount of your liability, an LLC gives you the ability to invest in non-conventional investments which most Roth IRA custodians don’t offer. You can direct your custodian to purchase real estate, metals, make private loans, invest in tax liens, or start a new business.

Real Estate

Roth IRA accounts can buy, manage, and sell real estate, but it’s tricky to do. You’re probably better off sticking with a REIT (Real Estate Investment Trust), limited partnership, or other form of indirect ownership if you want to diversify your Roth IRA with real estate.

Why? It has to do with running afoul of the IRS prohibited actions list. A disqualified person cannot have involvement in the purchase and/or management of a property purchased by the Roth IRA, and that includes you and your family. That means collecting a rent check or sweeping the driveway could trigger severe negative financial penalties.

Many entities, like the LLC structure described above, attempt to circumvent these rules. Some have met with success: IRS rulings support the use of their particular structure. Others have been disallowed, along with penalties and tax being assessed retroactive to the first year of operation.

Caveats aside, investing in real estate through your Roth IRA can be done. Look for custodian/trustees that have proven real estate investment backgrounds, solid legal footing with the IRS, and charge reasonable expenses for their services.

Precious Metals

Wall Street offers plenty of ways to invest in gold, silver, platinum, palladium, and other precious metals. You can invest in companies that mine the mineral, or buy precious metal mutual funds or exchange traded funds, but most Roth IRA custodians don’t give you the option of physically owning the mineral.

Self directed Roth IRAs can give you that option. You need to select a Roth IRA custodian who is a dealer/broker in your metal and use an approved depository, if applicable. As with all self directed Roth IRAs, there are plenty of rules and restrictions, so be sure to choose a custodian with a proven track record who knows the law.

Beware of unscrupulous custodians with high fees and shaky legal standing. There are plenty of “sharks” out there looking to take advantage in this area. Plus, oftentimes investing in commodities like precious metals makes the volatility of the stock market appear tame.

It may make sense to invest a small portion of your retirement dollars in precious metals, but rarely does it make sense to invest all or most of it.

Risk and Self Directed Roth IRAs

That’s the way it works with risk. Starting a new business, investing all of your money in just one type of investment, buying a speculative piece of real estate, gambling on commodity prices, or making high interest loans to start-up businesses all can make you rich quick, and through a self directed Roth IRA these investments are possible.

Be sure to be realistic and look at the downside. Most start-up businesses fail, the commodity markets are highly unpredictable, and investing in just one thing leaves you susceptible to messing up your retirement savings big time.

Be smart with your money. Diversify your portfolio with both risky and not-so risky investments. Include different types of investments in your investment plan, and always strive to keep your expenses low.