Self-Directed IRA Rules A Complete Guide

Self-Directed IRA rules summary: 

• Your IRA must be held by an IRS-approved custodian. 

• You cannot engage in prohibited transactions. 

• You cannot transact with disqualified persons.  

• You cannot personally benefit from IRA assets.  

• You cannot provide a personal guarantee on an IRA-owned asset. 

• You must remain within the yearly contribution limits.  

• Required minimum distributions (RMDs) for applicable accounts must be withdrawn annually once you reach RMD age.  

• You cannot invest in life insurance, S-corporations, or collectibles. 

• In some instances, taxes may apply to assets held in an IRA.  

Annual contribution limits are set by the IRS every year.  For Traditional and Roth IRAs, for tax year 2026:  

• The maximum annual contribution is $7,500  

• If you’re age 50 or older, maximum annual contribution is $8,500 

Contributions must be made by sending a check, wire, or ACH directly into your IRA cash balance first, not your IRA investment. Contributions must be recorded with your IRA custodian prior to being invested.  

A disqualified person is someone who cannot transact with your SDIRA.

Disqualified persons include:  

• You (the account holder) 

• Your Spouse 

• Parents and Grandparents 

• Children and Grandchildren 

• The fiduciary of the Self-Directed IRA and anyone else that provides services to the account. 

• Any entity (e.g. corporation, partnership, LLC) that is owned 50% or more, singularly or collectively, by disqualified persons (i.e., the persons described above). 

While the IRS allows IRA owners to obtain financing for investment purposes, there are strict limitations on how those loans are secured. Specifically, any load made to an IRA must be secured solely by collateral (such as the item being purchased).  You cannot provide a personal guarantee for the loan as the IRS constitutes personally guaranteeing a loan issued to your IRA as a personal benefit which triggers a prohibited transaction. To remain compliant, loans issued to an IRA must be non-recourse or borrowed by a non-disqualified person. 

Self-dealing prohibited transactions occur when a disqualified person receives a personal gain from their IRA investments. To protect the tax-advantaged status of your account, you must avoid any overlap between your personal interests and IRA’s assets.  

Common examples of self-dealing include: 

• Using IRA funds to buy a property you or a disqualified person intends to use. 

• Paying yourself a salary or fee to manage assets owned by your IRA. 

• Lending money to a business or entity you hold majority ownership in.  

Self-Directed IRAs provide investors with an expanded catalogue of investment options through alternative assets.  

With a Self-Directed IRA you can invest in: 

• Real Estate 

• Private Equity 

• Precious Metals 

• Private Lending 

• And more 

The only assets that are prohibited by the IRS are life insurance, S-corporations, and collectibles.  

Self-Directed IRAs maintain the same tax-advantages as a standard IRA allowing profits to grow either tax-deferred or tax-free depending on your account type. However, if you invest in an active business, as defined by the IRS, then Unrelated Business Income Tax (UBIT) may apply to your profits.  Likewise, Unrelated Debt Financed Income (UDFI), a subset of UBIT, may occur when your IRA borrows money to purchase an alternative asset. The net profits earned from the borrowed portion are considered UDFI and may be subject to UDFI tax. It is considered best practice to work with a qualified tax professional to determine if your activity has the potential to trigger taxes. 

Investment income types that may require or are exempt from UBIT: