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General Questions

What are the Benefits of a Self Directed IRA?

Self Directed IRAs offer:

Portfolio Diversification– Self Directed IRAs allow investors to diversify their retirement portfolios into alternative assets which are generally unavailable to them through a bank or brokerage house.  Investors can take a more balanced approach by diversifying their IRAs into alternatives in addition to market-based products.

Tax advantaged growth- Self Directed IRAs enjoy the same tax benefits of standard IRAs. Self Directed IRAs combine the tax savings inherent in retirement accounts along with the tremendous growth potential of alternatives. 

Freedom from market fluctuations– Investors seeking relief from precipitous market fluctuations related to Wall Street investments benefit from Self Directed IRAs which can invest in assets with steady and reliable income (such as rental real estate, promissory notes, tax liens, etc.). 

Capital source-Self-Directed IRAs are the solution for individuals seeking an additional source of capital for desired investments. Many investors would like to enter the alternative market however their personal funds are tied up. A Self Directed IRA allow these investors to access such investments with retirement funds. 

What type of investments does the IRS not allow?

The law does not permit IRA funds to be invested in life insurance or collectibles.

If you invest your IRA in collectibles, the amount invested is considered distributed in the year invested and you may have to pay a 10% additional tax on early distributions.

Here are some examples of collectibles:

  • Artwork
  • Rugs
  • Antiques
  • Metals – with exceptions for certain kinds of bullion
  • Gems
  • Stamps
  • Coins – (there are exceptions for certain coins)
  • Alcoholic beverages
  • Certain other tangible personal property

Are Self Directed IRAs limited to Traditional Accounts?


Roth, SEP, and SIMPLE IRAs can be self-directed as well.

Inherited IRAs (whether Traditional or Roth) can also be self-directed.

Am I required to transfer my entire existing IRA?

You are not required to transfer your entire account. You can transfer a portion when you open your Self Directed IRA and then transfer the remaining portion at a later point in time (or not at all).

Does Madison Trust Company offer investment advice or sell investment products?

Madison Trust Company (“Madison”) is a passive Self Directed IRA custodian and does not provide investment advice or sell any investment products. Clients are advised to perform their own due diligence when choosing an investment opportunity. Clients are also advised to consult with a financial professional to ensure that the investment is suitable for their financial situation.

How can I protect my Self Directed IRA from fraud?

Here at Madison we believe that accountholders should perform vigilant due diligence prior to placing investments with their IRA. Many retirees rely on their retirement accounts as their sole source of income in their golden years. It is important to ensure that their accounts are protected from fraudulent ventures and dishonest people. It is recommended that investors perform due diligence on their own, along with consulting financial professionals to ensure that the prospective investment is legitimate and a good fit for their personal situation.

Investors can avail themselves of fraud protection tips online, such as the following article:

US Securities and Exchange Commission:

How is Madison Trust Company regulated?

Madison Trust Company received its trust charter from the State of South Dakota and is regulated and examined by the South Dakota Division of Banking. As such, Madison must comply with all applicable South Dakota and federal laws.

What is a Self Directed IRA?

A Self Directed IRA allows individuals to invest their retirement money in alternative assets which are generally not available to them in a standard IRA.

Self Directed IRAs offer asset choices that go way beyond market-based products. They give people the power to put their money in investments which make sense to them personally.

Different people have different strengths and expertise and it makes sense that their investments should reflect those differences. Whether one is interested in real estate, a specific business, or even something speculative like Bitcoin, a Self Directed IRA is the tool that allows them to take advantage of these opportunities.

What is the role of a Self Directed IRA Custodian?

The IRS requires that all IRAs be held by a qualified third party such as a bank, trust company or other authorized custodian.

Accountholders can establish an IRA at a local bank or at a brokerage house, however they will then be limited to market-based products. Banks and brokerage houses generally do not custody alternative investments in IRAs due to the administrative burden involved.

Self Directed IRA custodians are the solution for people interested in investing their IRA into non-traditional assets. Self Directed IRA custodians specialize in custodying alternative assets and performing the labor-intensive duties associated with such transactions. 

Some of a Self Directed IRA custodian’s responsibilities include:

  • Maintaining IRA agreements and forms subject to the regulations of the IRS and the U.S. Department of Labor 
  • Accepting, documenting, and recording contributions, transfers and rollovers from other IRAs/retirement plans 
  • Executing accountowners’ investment instructions by sending funds from the IRA to the client selected investments  
  • Gathering, executing, and holding documents such as subscription agreements, operating agreements, offering documents, promissory notes, certificates, and other documents of ownership by the IRA
  • Receiving and recording income from the assets held in the IRA
  • Executing accountholders’ instructions to sell, withdraw from or liquidate investments held in the IRA
  • Facilitating, as directed by the accountholder, distributions from the IRA to the accountholder or transfers to other IRAs or retirement plans 
  • Performing tax reporting including IRS Forms 1099-R and 5498 
  • Providing statements to accountholders
  • Complying with all applicable State and/or Federal regulations governing IRA Custodians

What kind of investments can I place in a Self Directed IRA?

IRAs can invest in virtually any asset class other than life insurance and collectibles. Some of the most popular Self Directed investments are:

  • Private Placements (hedge funds, private equity funds, etc.)
  • Real Estate (rentals, commercial property, raw land, tax liens, etc.)
  • Promissory Notes (secured and unsecured)
  • Cryptocurrencies
  • IRA LLCs

Can I roll over a 401(k), 403(b) or other former Employer’s Plan into a Self Directed IRA?

Yes, Self Directed IRA custodians accept rollovers from Qualified Plans such as 401(k)s or 403(b)s. 

Please contact your current Plan Administrator to verify whether your account is available to be rolled into an IRA.

The majority of Plan Administrators allow accounts to be rolled over upon separation of service or retirement age (whichever is sooner). 

Ready to invest in your future?

Reach out to our team, and we’ll answer any questions you may have.
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Corporate Headquarters:
Madison Trust Company
401 East 8th Street • Suite 200
Sioux Falls, SD 57103
Mailing Address:
Madison Administration Company
One Paragon Drive • Suite 275
Montvale, NJ 07645
Monday - Thursday: 9:00AM - 6:00PM EST
Friday: 10:00AM - 4:00PM EST
Saturday/Sunday: Closed
(800) 721-4900
[email protected]
F: 845-947-1212