Top 5 Investments with a Self-Directed IRA
Many investors new to the idea of a self-directed IRA or 401(k) are unfamiliar with the investment options available to them and what works best in a self-directed IRA. Having worked with thousands of investors over the years, we thought it might be helpful to introduce some of the most popular investment choices.
Collecting rents from real property is a fantastic way to grow your retirement savings. Whether the property is a long term residential rental, commercial space, vacation rental property or even farmland, you have the dual benefits of securing your capital into a real asset and generating positive cash flow. You may even be so fortunate as to see the property itself appreciate over time, and reap double the reward.
Whether you work with a property management company or handle the properties yourself, this type of investing can be very rewarding.
Trust Deeds & Mortgages
Many investors prefer to be the bank rather than a landlord, and pursue real estate opportunities from the perspective of providing financing. There are many approaches that have proven successful for our clients, including short term lending to investors flipping homes (often referred to as hard money), new construction lending, and longer term mortgages for investment or commercial properties.
As with owning real estate, your IRA’s investment principal is secured by the deed to the property and you can foreclose on the borrower in the event of a default.
Depending on the type of lending, you can expect generous return on investment for such a secure investment. Longer term 5-7 year mortgages on another investor’s rental property or a commercial unit might produce in the 7-9% range. Shorter term rehab or construction financing can often be done at 12-15% interest, depending on the level of risk involved and loan to value ratio.
Tax Liens & Deeds
Tax lien and tax deed investing are exciting ways to put smaller amounts of capital to work in potentially high yield investments. When a property owner is behind on their property taxes, the county will auction off a lien or deed secured by the property in order to collect the revenue they need to operate public services. Investors can purchase these instruments and will either receive a premium rate of return in the range of 12-18% when the taxpayer finally pays off the tax debt, or have the potential to foreclose on the property. In many cases, your investment is the amount of back taxes owed. The type of tax instruments available vary from state to state, and this is an area where you will definitely want to be well educated both on the type of tax lien/deed available and the local/state laws governing how such auctions are conducted.
Private Lending
Look around your personal and business network. Do you know a business owner wanting to expand or someone planning to start a new business? Is a friend or associate experiencing a short term financial pinch due to layoff, divorce or illness? So long as you avoid transacting directly or indirectly with disqualified parties to your IRA, your plan can lend to business or individual on a secured or unsecured basis. So long as you conform to state lending laws, this is an alternative that can allow you to put your money to work in your own community.
Our primary advice in this area is to invest with your mathematical brain, not with your heart. Always be sure you have solid contracts and record the loan at the state or county level to secure your rights. Because you have a fiduciary obligation to protect the interests of your IRA, you cannot simply forgive a debt to a friend without potentially running afoul of the IRS. If you think there is a chance the financial transaction could potentially go bad and spoil a cherished relationship, you should pass on the opportunity.
Venture Capital
Several of our clients are well networked with entrepreneurs, inventors or other individuals with opportunities to invest in a start up or early stage venture. Your self-directed IRA or Solo 401(k) can be used to provide start up or growth capital to a business and potentially make significant gains as a result.
This type of investing can be one of the more complex avenues for deploying your retirement savings, however. Performing diligence on a new venture can be tricky. Many start up businesses fail to reach their potential due to a variety of reasons, and as investor you need to understand the risks surrounding the particular type of business you are investing in.
When investing in venture capital, one needs to be especially aware of rules surrounding self dealing or dealing with disqualified parties. If your IRA or 401(k) is investing in a business, you need to personally remain at arm’s length.
Investing in an operating business that is not a C Corporation can have exposure to Unrelated Business Taxable Income (UBTI) on the operating income. The increase in value of your shares of the business is not subject to this tax, however. Since the increase in share value is generally the objective of venture capital investments, the exposure to UBTI is most often acceptable, but you will want to be sure you fully understand the implications.
There are many other ways you can employ a self-directed IRA or Solo 401(k) to participate in the opportunities that surround you and diversify your retirement investing portfolio. When you work with Safeguard Advisors, you can rest assured that you have a team of experts on your side who are familiar with the rules surrounding such investments, and that we can help you maximize your returns while staying within the IRS guidelines.
What our clients says about us
Quick answers to common questions
We’ll take you through a simple, step by step process designed to put your investment future into your own hands…immediately. Everything is handled on a turn-key basis. You take 100% control of your Retirement funds legally and without a taxable distribution.
YES! In 1974, Congress passed the Employee Retirement Income Security Act (ERISA) making IRA, 401(k) and other retirement plans possible. Only two types of investments are excluded under ERISA and IRS Codes: Life Insurance Contracts and Collectibles (art, jewelry, etc.). Everything else is fair game. IRS CodeSec. 401 IRC 408(a) (3)
It’s actually pretty simple. Early on, regulators let the securities industry take the lead in educating the public about retirement accounts. Naturally, brokers and banks promoted stocks, bonds, and mutual funds—giving the impression that those were the only allowed investments. That was never true... and still isn’t. You can probably guess why they kept the rest under wraps.
It is possible to use funds from most types of retirement accounts:
- Traditional IRA
- Roth IRA
- SEP IRA
- SIMPLE IRA
- Keogh
- 401(k)
- 403(b)
- Profit Sharing Plans
- Qualified Annuities
- Money Purchase Plans
- and many more.
It must be noted that most employer sponsored plans such as a 401(k) will not allow you to roll youraccount into a new Self-Directed IRA plan while you are still employed. However, some employers will allow you to roll a portion of your funds. The only way to be completely sure whether your funds are eligible for a rollover is by contacting your current 401(k) provider.
A Solo 401(k) requires a sponsoring employer in the format of an owner-only business. If you have a for-profit business activity – whether as your main income or as a side venture – and have no full-time employees other than potentially your spouse, your business may qualify. The business may be a sole-proprietorship, LLC, corporation or other entity type.
A self-directed retirement plan is a type of IRA or 401(k) that gives you greater control over how your retirement funds are invested. Unlike traditional accounts held at banks or brokerage firms that limit you to stocks, bonds, and mutual funds, self-directed plans allow you to invest in a wide range of alternative assets including real estate, private businesses, precious metals, cryptocurrency, and more.
These plans still follow the same IRS rules and maintain the same tax-deferred or tax-free benefits as conventional retirement accounts. The difference is simply in how and where you choose to invest.
No. Moving to a self-directed IRA or Solo 401(k) does not trigger any taxes, as long as your funds are eligible for rollover.
Self-directed retirement plans maintain the same tax-advantaged status as traditional plans offered by banks or brokerage firms. The key difference is flexibility—our plans are designed to give you greater control and allow for a wider range of alternative investments beyond stocks, bonds, and mutual funds.
A prohibited transaction is any action between your retirement plan and a disqualified person that violates IRS rules and can lead to serious tax consequences. Under IRS Code 4975(c)(1), prohibited transactions include:
- Selling or leasing property between your plan and a disqualified person Example: Your IRA cannot purchase a property you already own.
- Lending money or extending credit between the plan and a disqualified person Example: You cannot personally guarantee a loan your IRA uses to buy real estate.
- Providing goods or services between your plan and a disqualified person Example: You can’t use your personal furniture to furnish a rental property owned by your IRA.
- Using plan income or assets for the benefit of a disqualified person Example: Your IRA cannot buy a vacation home that you or your family use.
- Self-dealing by a fiduciary (using plan assets for their own benefit) Example: Your CPA shouldn't loan your IRA money if they’re advising the plan.
- Receiving personal benefit from a deal involving your IRA's assets Example: You can’t pay yourself from profits your IRA earns on a rental.
If a transaction doesn’t clearly fall within the allowed guidelines, the IRS or Department of Labor may review the situation to determine if it qualifies as a prohibited transaction.
Disqualified persons are individuals or entities that are prohibited from engaging in certain transactions with your IRA or 401(k). Doing so could trigger a prohibited transaction, which may result in taxes and penalties.
Here’s who is considered a disqualified person:
- You (the account holder)
- Your spouse
- Your parents, grandparents, and other ancestors
- Your children, grandchildren, and their spouses
- Any advisor or fiduciary to the plan
- Any business or entity owned 50% or more by you or another disqualified person, or where you have decision-making authority
These rules exist to prevent self-dealing and ensure your retirement plan remains in compliance with IRS regulations.
(Reference: IRC 4975)
Understanding and following these rules can be tricky, but it’s very doable. The best way to stay compliant is to work with professionals who specialize in self-directed retirement plans. They can help you navigate IRS guidelines and avoid prohibited transactions.
If an IRA holder is found to have engaged in a prohibited transaction with IRA funds, it will result in a distribution of the IRA. The taxes and penalties are severe and are applicable to all of the IRA’s assets on the first day of the year in which the prohibited transaction occurred.
Yes. While self-directed retirement plans allow for a wide range of investments, there are a few important restrictions.
You cannot invest in collectibles or life insurance contracts, and you must avoid prohibited transactions—activities that benefit you personally rather than the retirement plan. These include things like buying or selling property to yourself or family members, using plan assets for personal gain, or self-dealing in any way.
Violating these rules could cause your entire IRA to lose its tax-advantaged status. To protect your account, it’s essential to work with professionals who understand IRS regulations and can help you stay compliant.
This is a common misconception. In many cases, professionals may simply be unfamiliar with self-directed retirement plans, as they fall outside their usual scope of work. CPAs and tax preparers are trained to file taxes, not necessarily to advise on alternative retirement strategies. Financial advisors and brokers often work for firms that focus on traditional investments like stocks and mutual funds—and may not benefit from or support alternative options like real estate or private lending.
Self-directed retirement investing is legal under IRS rules—but like any specialized area, it requires working with professionals who understand how it works.
The IRS has rules in place to make sure your IRA is used only for the exclusive benefit of the retirement account—not for personal gain or to help family members. These rules can get complicated because there are many ways a conflict of interest can occur, even unintentionally.
For example, if your IRA buys a house and rents it to your mother, you might be reluctant to evict her if she stops paying rent. That emotional connection creates a conflict between what’s best for your IRA and your personal relationships, something the IRS aims to prevent.
These rules help ensure your retirement account stays compliant and protected. (See IRC 408)
Yes. Most tax-deferred retirement accounts—such as Traditional IRAs, old 401(k)s, 403(b)s, and TSPs—can be rolled over into a self-directed IRA or Solo 401(k), depending on your eligibility. Roth IRAs cannot be rolled into these accounts.
You can contribute directly from earned income, subject to annual IRS contribution limits. The method and amount depend on the type of plan you have (e.g., Solo 401(k) vs. IRA).
To take a distribution, you'll request funds through your custodian or plan administrator. Distributions may be taxable depending on your account type and age. Early withdrawals may be subject to penalties.
For 2025, the Solo 401(k) max contribution limit is $81,250 if age 60-63, $77,500 if age 50-59 or 69+, and $70,000 if under 50. Traditional and Roth IRAs have a limit of $7,000 ($8,000 if age 50+). Limits are subject to IRS adjustments.
Yes. IRA contributions are typically due by your personal tax filing deadline (e.g., April 15). Solo 401(k) contributions follow your business tax filing deadline, including extensions.
IRS reporting requirements vary depending on the type of self-directed retirement plan you have. Here’s a quick breakdown of what you need to know
Please note: Our team can help you understand what’s required for your specific account, but we don’t provide tax or legal advice. We always recommend working with a qualified tax professional to ensure full IRS compliance.
Self-Directed IRA (Traditional or Roth)
- Form 5498 – Filed by your custodian each year to report contributions, rollovers, and the fair market value (FMV) of your account.
- Form 1099-R – Issued if you take a distribution or move funds out of your IRA.
- Annual Valuation – You'll need to provide updated FMV for any alternative assets held in the account, such as real estate or private placements.
Solo 401(k)
- Form 5500-EZ – Required if your plan assets exceed $250,000 as of year-end. Must be filed annually by the plan participant.
- Form 1099-R – Required if you take a distribution or roll funds out of the plan.
- Contribution Tracking – Keep records of employee and employer contributions. These are not filed with the IRS but may be needed for tax reporting or audits.
SEP IRA
- Form 5498 – Filed by your custodian to report contributions and FMV.
- Form 1099-R – Filed by your custodian. Issued for any distributions.
- Employer Contributions – Must be reported on your business tax return (and on employee W-2s, if applicable).
Health Savings Account (HSA)
- Form 5498-SA – Filed by your HSA custodian to report contributions.
- Form 1099-SA – Filed by your HAS custodian. Issued for any distributions.
- Form 8889 – Must be included with your personal tax return to report contributions, distributions, and how funds were used.
