March 4, 2024

The ABCs of Self-Directed IRAs

Written By: Daniel Gleich

Key Points 

  • You can grow your retirement savings by investing in a variety of alternative assets with a Self-Directed IRA (SDIRA).
  • Through an SDIRA, you may diversify your retirement portfolio, take a hands-on approach to investing, combat the volatility of the stock market, and receive tax advantages.
  • With a reputable Self-Directed IRA custodian like Madison Trust, you'll receive guidance at every step of the way — from opening your account to placing your investment.
wooden blocks with ABCs and funds increasing with a Self-Directed IRA

If you’re looking for a way to diversify your retirement portfolio, a Self-Directed IRA (SDIRA) is worth exploring. You can use it to invest in alternative assets that align with your unique passion, knowledge, and expertise. 

These may include real estate, precious metals, private placements, or promissory notes. Below we’ll go over the ins and outs of SDIRAs so you can familiarize yourself with this powerful yet often overlooked retirement savings tool.

Block letters on a table that spell out “SDIRA” next to a calculator and money.

What is a Self-Directed IRA?

An SDIRA is similar to a Traditional IRA - you open and fund your account and invest in assets to help grow your savings so you can eventually retire. The difference between these two accounts, however, lies in the types of investments you can make. While a Traditional IRA generally limits you to stocks, bonds, and mutual funds, an SDIRA allows you to invet beyond Wall Street into a long list of alternative assets.

How Does a Self-Directed IRA Work?

Just like a Traditional IRA, an SDIRA involves a custodian who will hold your assets, perform transactions at your direction, and support you with any necessary  tax filings. Once you open and fund your account, you can choose the alternative investments you’d like to invest in and submit authorization forms to the custodian. The custodian will then perform any investment transactions on your behalf.

Types of Alternative Assets

two business men discussing alternative assets

With an SDIRA, there is no shortage of investment opportunities. Here are some of the most popular alternative assets you may decide to invest in:

Self-Directed IRA Options

Not only does a Self-Directed IRA allow you to choose your investments, it can also give you the chance to choose your tax benefits. The four different types of Self-Directed IRA accounts, include:

  • Self-Directed Traditional IRA: Just like a Traditional IRA, you contribute pre-tax dollars, potentially reducing your current taxable income. 
  • Self-Directed Roth IRA: With a Self-Directed Roth IRA, you contribute after-tax dollars. All your earnings grow tax-free.
  • Self-Directed SEP IRA: Specifically designed for business owners and self-employed individuals, a Self-Directed SEP IRA allows you to make contributions as the employer. 
  • Self-Directed SIMPLE IRA: A Self-Directed SIMPLE IRA is a tax-deferred account for small business owners with less than 100 employees who don’t offer other retirement plans.

Benefits of a Self-Directed IRA

There a number of reasons an SDIRA is a great option for savvy retirement investors, including:

business man holding coins to show diversification


With an SDIRA, the sky's the limit. You can invest in a variety of alternative investments that generally aren’t an option with a Traditional IRA, like real estate, precious metals, and private placements, just to name a few.

Hands-On Investing

An SDIRA offers a hands-on approach to your retirement investing. It allows you to invest in the types of alternative assets you know and believe in. Different people have different strengths, and it makes sense that their investments should reflect those differences.


Investing with an SDIRA allows you to combat the potential volatility of the stock market. This is because alternative investments are typically uncorrelated in performance with Wall Street products, allowing you to possibly lower your overall risk.

Tax Advantages

Self-Directed IRAs offer either tax-deferred growth (Self-Directed Traditional IRA) or tax-free growth (Self-Directed Roth IRA) of your retirement funds.

Start Your Self-Directed IRA Journey Today

If you’re interested in saving for retirement through a Self-Directed IRA or would like some more information, schedule a discovery call with Madison Trust. We look forward to hearing from you!

Disclaimer: All of the information contained on our website is a general discussion for informational purposes only. Madison Trust Company does not provide legal, tax or investment advice. Nothing of the foregoing, or of any other written, electronic, or oral statement or communication by Madison Trust Company or its representatives, is intended to be, or may be relayed as, legal, tax, investment advice, statements, opinions, or predictions. Prior to making any investment decisions, please consult with the appropriate legal, tax, and investment professionals for advice.

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