Which Self-Directed Retirement Plan is Best for Me? Part I
There are several types of self-directed IRA, 401(k) and business funding programs available.
*This blog post is the first article of a two part series, be sure to check back for the second and final article.
There are several types of self-directed IRA, 401(k) and business funding programs available. If you are contemplating establishing such a plan so that you can take control of your retirement investing, you will want to start by making sure you select the right plan for your situation and investment goals.
There are several factors that need to be considered when selecting a plan, including:
- The type(s) of retirement account(s) that will be transferred to a self-directed plan
- Do the accounts belong to an individual or to husband and wife
- The type of investments the plan will be used for
- Where investments will take place
- The participant(s) age and employment situation
- Are new contributions into the plan going to be made
- The level of administrative responsibility you are willing to take on
- Estate planning considerations
- Investment exit strategy
There is no one size fits all solution, and even within a single plan type, there are different considerations that will need to be addressed for investors with different individual circumstances.
The best way to identify the right path for you is to speak with experts in the field, and not just self-directed IRA providers, but also those with expertise in the type of investing you want to do and with regards to your big picture financial goals.
This blog post will outline of the various plans available that might help point you in the right direction.
Self-Directed IRA Custodian
There are several trust companies that offer IRA accounts with the ability to hold non-traditional assets such as real estate, private placements, precious metals and other investments not available through traditional brokerage houses.
With a self-directed IRA provided by such custodians, the institution will hold the funds and engage in all transactions for the benefit of your IRA. That means that every transaction requires you to send paperwork to the custodian who will then review the paperwork to ensure it is complete before processing the transaction such as funding a purchase or maintenance expense, or accepting receipt of income. Of course, this processing takes time and there is either a cost for every transaction or fees based on the number of assets held or dollar value of the account, or some combination of these factors.
Because of this “middleman” business model, investing with a self-directed IRA account held by a custodian is best suited for a portfolio with minimal transaction activity, and where timely reaction for opportunity or emergency is not required. A custodial IRA is well suited for investing in private placements, mid-to-long-term trust deeds or mortgages, raw land and other more static asset types. Even with these types of investments, an investor intending to engage in several such transactions or working with a large sum of capital might find greater efficiency with a plan that offers checkbook control.
Keep in mind that an IRA custodian is prohibited by rule from offering tax, legal or investment advice. Their role when processing transactions is not to ensure you are in compliance with IRS rules or perform diligence on the investment you are making, but rather simply to faithfully document and execute the transaction.
Note that Safeguard Advisors is not a custodian and does not offer this type of account.
Checkbook IRA LLC
A Checkbook IRA LLC is an enhancement to a custodial self-directed IRA that puts the administrative control in your hands. An IRA account is established with a self-directed IRA custodian, and that IRA will then make a single investment into the ownership of a special purpose limited liability company. While the LLC is owned by the IRA and therefore subject to the same rules and entitled to the same tax-preferred status as the IRA itself, you as the IRA account holder can serve as the manager of the LLC and therefore have signing authority on behalf of the entity. You will establish a business checking and/or brokerage account in the name of the LLC and that is where the IRA capital will be deployed from.
The primary advantage of this arrangement is that you have direct control over investment activities and do not need to go through a 3rd party in order to purchase an asset for the IRA, deal with a maintenance expense, or receive income from the investments. All these transactions take place through the LLC and do not involve the IRA custodian.
For time sensitive investments such as tax lien or foreclosure auctions, this ability to act immediately is critically important. There is also great benefit when it comes to investing in more complex and interactive assets such as rental property where there is a constant need for expense and income transactions related to property taxes, insurance, HOA fees, maintenance and monthly rents. Eliminating the custodial processing delays and transaction fees not only increases efficiency and reduces overall costs, but can also prove critical when dealing with unexpected emergencies. Do you know a plumber that will come out immediately on a weekend but be willing to wait 5-7 days to get a check from your IRA custodian?
Of course, all this flexibility comes with responsibility. As the IRA account holder and manager of the LLC, it is your obligation to ensure you are acting in accordance with the IRS guidelines. This is also true with a custodian managed account, of course, but is magnified somewhat when you hold the checkbook.
Any type of IRA account can be used, including traditional tax-deferred IRA’s, Roth IRA’s, SEP and SIMPLE IRA’s, or even an inherited IRA.
Because IRA accounts are individual in nature, the IRA LLC best suited for a single investor with a single type of IRA. Combining funds of a husband and wife, or funds in traditional and Roth IRA accounts is not easily accomplished, though it can be done.
The next blog post in our two part series will focus on the solo 401(k) and business funding IRA plans. Be sure to check back for the next article that will share valuable information for choosing the right self-directed retirement plan for you.
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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.
