Self-Directed IRA Basics: What They Are and How To Open an Account

A Self-Directed IRA is a retirement account held by a custodian that lets you invest in alternative assets such as real estate, private placements, promissory notes, and more.

Self-Directed IRAs give investors the power to diversify their portfolio, invest in what makes sense to them personally, and hedge against the stock market.

Self-Directed IRAs have certain benefits over standard IRAs, including greater asset choice, asset security, flat fees, and more.

There are three simple steps to setting up a Self-Directed IRA: open an account, fund the account, and make an investment.

The cost to set up a Self-Directed IRA at Madison Trust is $50, and then $95 per quarter to maintain.

The contribution limits for a Self-Directed IRA are the same as a standard IRA. If you are younger than 50 years old, you can contribute up to $6,500 in 2023 ($6,000 in 2022). If you are 50 or older, you can contribute up to $7,500 in 2023 ($7,000 in 2022). Contributions for the year prior must be made by the tax filing deadline.

In addition to annual contributions, Self-Directed IRA account holders may also roll over or transfer funds from another retirement account.

A prohibited transaction is an improper transaction between an IRA and a disqualified person. A good rule of thumb is that an IRA may transact with third parties but may not transact with close family members or closely held entities.

If you withdraw funds from a Self-Directed IRA before age 59 ½, you must pay applicable taxes and penalties. Once you reach age 72, you must begin to take required minimum distributions (RMDs). A Self-Directed Roth IRA is exempt from taking lifetime RMDs, since taxes are paid upfront.

To make a distribution from a Self-Directed IRA, you should complete a Distribution Request Form that details the distribution type, amount, and frequency of the distribution. If you are distributing an asset, please also submit a third-party certified value (ex: an appraisal, letter from an investment sponsor, CPA-certified valuation, etc.). Depending on the asset, additional documents also may need to be submitted.

After the documents are submitted and approved, Madison Trust will send an assignment of interest to you. This documents the transfer of ownership from your IRA to your personal possession.

At Madison Trust, we make Self-Directed IRA setup fast and simple. Fill out our online application in about ten minutes. Then, typically, it takes as little as one or two weeks for your funds to be transferred to your IRA or IRA LLC. 

We will complete your request within a few days. However, the transfer of funds from another custodian depends on that financial institution's processes and procedures.