close
close

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

You may have heard the terms "self-directed retirement account," "alternative IRA," or "real estate IRA," but like most investors, you could probably use some clarity. What exactly is a self-managed retirement account? What benefits does it have? And what possible effects can a Self-Directed IRA have as part of your retirement investment strategy? Get answers from the Self-Directed IRA Specialists at Madison Trust, then get help gaining control of your retirement investments with a Self-Directed IRA:

If you're looking to start investing with a Self-Directed IRA, you're in the right place! We can help you learn:

Key Points

Piggy Bank Icon

Invest Beyond Wall Street

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

Arrow Up Bars Icon

Diversify Your Portfolio

Self-Directed IRAs give you, the investor, the power to diversify your portfolio, invest in what you know and believe in, and hedge against the stock market.

Holding Money Icon

Low Fees

The fees for a Self-Directed IRA held at Madison Trust are among the lowest in the industry - and are set at a fixed rate regardless of the value in your account. 

iPhone Gear and User Icon

Simple Set Up

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

What is a Self-Directed IRA?

A Self-Directed IRA is similar to a standard IRA. It's a retirement account that you contribute funds to, so that your retirement funds can grow through investments. The difference between a standard IRA and a Self-Directed IRA is the types of investments your account can hold. A standard IRA allows you to invest in publicly traded products like stocks, bonds, and mutual funds. With a Self-Directed IRA, you can choose to invest in almost any type of alternative asset. It's common to use a Self-Directed IRA for real estate, precious metals, and private placements.

Why Have I Never Heard of a Self-Directed IRA?

The concept of a Self-Directed retirement plan is a novel one to many, as the majority of Americans hold their IRAs in large brokerage houses. They automatically assume that IRAs can only be invested in stocks, bonds, and mutual funds since those are the products offered to them. Brokerage houses do not accommodate alternative investments due to the administrative tasks involved and loss in commission.

What Are the Benefits of a Self-Directed IRA?

Portfolio Diversification: A Self-Directed IRA allows investors to diversify their retirement portfolios to include assets that are inaccessible in a standard IRA. Self-Directed IRA custodians specialize in privately held investments like real estate, private businesses, promissory notes, cryptocurrencies, and more, all within a tax-advantaged account.

Hands-on Investing: Self-Directed retirement plans encourage individuals to invest in what they are familiar with. They provide investors with the power to put money into investments that make sense for them personally. Different people have different strengths and expertise, and it makes sense that their investments should reflect those differences.

Stability: With a Self-Directed IRA, one can diversify from the volatility of the stock market and invest in products with a steadier and more reliable revenue stream. Popular choices include rental real estate, secured promissory notes, and tax liens.

How Does a Self-Directed IRA Work?

Like its standard counterpart, a Self-Directed IRA is held by a qualified custodian. The custodian will hold your funds, execute transactions, and assist with any necessary tax filings. When you want to make a specific investment, here are the basic steps:

Choose an Asset: This part is fully up to the investor. In most cases, a Self-Directed IRA custodian will not offer specific financial advice. You should choose an asset for which you have a good grasp of its potential profitability as well as one that you have the means to manage.

Submit an Investment Authorization Form: Fill out the form and submit it to the Self-Directed IRA custodian, and the custodian will perform the transaction. Of course, certain assets will have more extensive paperwork associated with their purchase; this is not due to the Self-Directed IRA but rather to the nature of the asset itself. For example, real estate often possesses a more involved process, including title and deed processing.

Are There Different Types of Self-Directed IRAs?

Yes. You can choose to open a classic Self-Directed IRA or a Self-Directed IRA with checkbook control (also known as a Checkbook IRA).

Self-Directed IRA


A Self-Directed IRA is an individual retirement account that lets you invest in alternative assets beyond stocks, bonds, and mutual funds. You, as the account holder, direct the custodian to perform transactions.

White Circle Blue Checkmark Icon
Optimized for low-transaction investments, like private placements and precious metals
White Circle Blue Checkmark Icon
Place investments by instructing Madison Trust to send your IRA funds by writing a check or sending a wire directly to your investment.
White Circle Blue Checkmark Icon
Simpler and low-cost setup; setting up an LLC or trust is not required

Self-Directed IRA with Checkbook Control (Checkbook IRA)

This type of Self-Directed IRA allows you, as the account holder, to perform transactions in real-time. This investing power is achieved through the creation of an entity, such as an IRA LLC or IRA Trust.

White Circle Blue Checkmark Icon
Optimized for transaction-heavy investments, like real estate rentals and fix-and-flips
White Circle Blue Checkmark Icon
Place investments by simply writing a check or sending a wire from your Checkbook IRA designated checking account
White Circle Blue Checkmark Icon
Broad Financial, Madison Trust's sister company, will create the entity (LLC or trust) for you to provide a seamless investment experience
Learn More

What can a Self-Directed IRA Invest in?

A Self-Directed IRA can legally invest in almost any asset. The only assets that are off limits are collectibles, life insurance, 
and S-corps. Some of the more popular investments include:

Real Estate Building Icon
Real Estate
(Rentals, Commercial Property, Raw Land, etc.)
Money Stack Icon
Private Placements
(Private Equity Funds, Hedge Funds, etc.)
Money Notes Icon
Promissory Notes
(Secured and Unsecured)
Rocket Ship Icon
Startups and Crowdfunding
Precious Metals
And Many More

Got questions? We've got answers!

Contact us and we'll be glad to walk you through your investing options.
Contact Us

Self-Directed IRA vs. Standard IRA: What's the Difference?

One concept that almost all investors and financial advisors can agree on is the importance of diversifying your portfolio. Investing in a variety of assets, including Wall Street products (stocks, bonds, and mutual funds) and alternative assets (real estate, precious metals, private placements, promissory notes, etc.) may reduce overall risk. 
But you still may be wondering, "Which IRA is best for me?" Here are some of the basic differences between a 
standard IRA and a Self-Directed IRA.

Standard IRA
Self-Directed IRA
Asset Choice
Typically offers Wall Street products. These can be individual stocks as offered by online trading platforms or aggregated products like mutual funds.
Typically offers a diverse asset choice. Investors can purchase real estate, shares in a private business, precious metals, and more. Almost any asset can be purchased, except collectibles, life insurance, and S-Corporation stock.
Asset Security
No guaranteed security. The value of the IRA will generally rise and fall with the stock market.
No guaranteed security. Some assets, like real estate, tend to retain value, while others can be more volatile.
IRS Rules
All IRAs (individual retirement accounts) are subject to certain IRS rules.
A Self-Directed IRA follows the same rules as a standard IRA. However, due to the more hands-on nature of the account, account holders are encouraged to conduct their own due diligence and understand rules like prohibited transactions.
Custodian
Must be held by a regulated custodian as required by the IRS. Most banks, brokerages, and online trading platforms offer IRAs.
Offered exclusively by regulated custodians who specialize in Self-Directed IRAs.
Standard IRA
Asset Choice
Standard stock market products.
Fees
Standard fee schedules are asset-based. That means a defined percentage of the overall account will be assessed as the annual fee.
Account Opening
Depending on the institution chosen, can be done in 15 minutes.
IRS Rules
All retirement accounts are subject to the same rules.
Self Directed IRA
Asset Choice
Diverse asset choice.
Fees
Different Self Directed IRA companies have different fee structures. Madison Trust charges a flat annual fee that is not dependent on account value.
Account Opening
Madison’s Self Directed IRA can be opened in 15 minutes. A Checkbook Control Self Directed IRA can take longer to set up due to the establishment of the LLC or Trust.
IRS Rules
A Self Directed IRA has the same rules as a standard IRA.

Setting Up a Self-Directed IRA

The process to set up a Self-Directed IRA at Madison Trust is simple. Madison Trust's Self-Directed IRA Specialists can guide you through the entire process from setting up an account to placing an investment. For more information our simple setup process, download the How To Invest with a Self-Directed IRA at Madison Trust PDF.
1
Man Standing Next To Phone Icon

Open a Self-Directed IRA

Open a Self-Directed IRA with Madison Trust by completing our easy online application.
2
Standing Looking At Screen Icon

Fund Your Account

Fund your Self-Directed IRA by transferring or rolling over all - or a portion of - your funds from an existing retirement account, such as an IRA or 401(k), or by making an initial contribution.​
3
Standing Holding Check Icon

Place an Investment

Instruct Madison Trust to send your IRA funds by writing a check or sending a wire directly to your investment.

Take This Info on the Go!

Download this PDF that outlines our simple setup process.
Download PDF

How Much Does it Cost to Use a Self-Directed IRA?

The cost to set up a Self-Directed IRA with Madison Trust Company is $50; maintenance is $100 per quarter.

What Are the Contribution Limits for a Self-Directed IRA?

The IRS places annual limits on the amount that can be contributed to a retirement account. In 2023, the Self-Directed IRA maximum contribution is $6,500 if you're under age 50. If you're age 50 and over, you can make an additional $1,000 catch-up contribution ($7,500 maximum contribution for age 50+). For more information on Self-Directed IRA contributions, please visit our frequently asked questions.

Please note that Self-Directed IRA limits can change on a yearly basis. Madison Trust Company representatives are always happy to answer any questions you may have. Schedule a call today to get your questions answered.
Schedule A Call

Ready to Get Started? We're Here for You! 

Madison Trust offers Self-Directed IRA services that are easy to get started with! Thanks to our dedicated Self-Directed IRA Specialists, you will be provided with step-by-step guidance from account setup all the way to placing your investment. It's time to start investing in what you know and believe in with a Madison Trust Self-Directed IRA!
Schedule A Call

Self-Directed IRA – FAQs

What are the Fees for a Self-Directed IRA?

The cost to set up a Self-Directed IRA at Madison Trust is $50, and then $100 per quarter to maintain.

How Much Money Can You Put in a Self-Directed IRA?

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.

What are Prohibited Transactions in a Self-Directed IRA?

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.

When Can You Take Distributions From a Self-Directed IRA? 

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.

If you withdraw funds from a Traditional 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). Roth IRAs are exempt from taking lifetime RMDs since taxes are paid upfront.

How Do I Distribute Assets From a Self-Directed IRA?

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.

How Long Does it Take to Set Up a Self-Directed IRA? 

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.

Our Self-Directed IRA Specialists are here to answer all of your questions.(800) 721-4900

Ready to start investing in your future?

Reach out to our team, and we’ll answer any questions you may have.
All Pages Bottom Contact Form
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
Hours:
Monday - Thursday: 9:00AM - 6:00PM EST
Friday: 10:00AM - 4:00PM EST
Saturday/Sunday: Closed
Contact:
(800) 721-4900
[email protected]
F: 845-947-1212
magnifiermenuchevron-down