December 12, 2023

What Is the Difference Between a Self-Directed IRA and Directed Trust?

Written By: Daniel Gleich

Key Points 

  • Self-Directed IRAs (SDIRAs) offer the flexibility to diversify your retirement portfolio into alternative assets while enjoying tax-advantaged growth.
  • Directed Trusts, suitable for individuals with substantial assets, focus on advanced financial planning, asset protection, privacy, and legacy planning.
  • Your choice between a Self-Directed IRA and a Directed Trust depends on your financial goals, asset value, and the level of control and management you require.

When you’re planning your financial future and managing your assets, you have a spectrum of tools and accounts at your disposal. Two options that often come up in discussions are Self-Directed IRAs and Directed Trusts.

A Self-Directed IRA is a flexible way of growing your retirement wealth. It's especially attractive to individuals interested in diversifying their retirement portfolios with alternative assets. Meanwhile, Directed Trusts are typically favored by those with substantial assets, seeking financial planning, tax mitigation, and a tool to safeguard their legacy. Read on for a starter guide to help you decide if either of these options might be right for you.

Self-Directed IRA: The Engine for Alternative Assets

A jar of money with IRA sticky note on it and a calculator on a table showing that your retirement funds can grow with a Self-Directed IRA invested in alternative assets.

A Self-Directed IRA is, in many ways, like a standard IRA, but with one significant difference. It allows you to invest in alternative assets such as real estate, precious metals, private placements, and much more. Instead of being limited to conventional stocks and bonds, you can explore a world of investment opportunities. The alternative investments you hold in your Self-Directed IRA can grow tax-deferred if it’s a Self-Directed Traditional IRA or tax-free if it’s a Self-Directed Roth IRA.

With a classic Self-Directed IRA, you direct your custodian, such as Madison Trust, to execute your investment transactions on your behalf, using the retirement funds in your account. If you opt for checkbook control, you can manage your everyday investment transactions directly. This enhanced authority stems from creating an entity, such as an LLC or trust, and opening a dedicated checking account for your IRA.

Directed Trust: The Vehicle for Legacy Planning

A Directed Trust serves as a specialized form of a standard trust structure, offering enhanced control and flexibility to those with substantial assets. While there's no fixed minimum requirement, clients who opt for Directed Trusts typically have assets valued at $1 million or more. The primary drivers for choosing a Directed Trust often revolve around specific financial goals, including tax efficiency, asset protection, privacy, and multi-generational planning.

The Directed Trust is highly versatile when it comes to the types of assets it can hold. This flexibility allows you to incorporate a range of asset classes into your trust, tailoring your financial strategy to meet your unique needs. With these advantages, Directed Trusts have become a powerful tool for high-net-worth individuals, allowing them to efficiently manage their wealth and safeguard their assets.

A retired couple walking their dog in the fall and planning their legacy with a Directed Trust.

Why Choose a Self-Directed IRA?

The choice between a Self-Directed IRA and a Directed Trust largely depends on your financial situation and objectives. For those looking to explore a broad spectrum of alternative investments and grow their retirement savings tax-efficiently, a Self-Directed IRA is a compelling option. Here's why:

pie chart with graph, percentage, and money coin to display a diversified retirement portfolio with a Self-Directed IRA.


A Self-Directed IRA empowers you to diversify your portfolio by investing in a variety of alternative assets beyond traditional stocks and bonds. This diversification can potentially enhance your financial security.

icon of scissors cutting taxes to show that you have tax-advantages when you invest with a Self-Directed IRA.

Tax Advantages:

With a Self-Directed IRA, your investments have a tax advantage. This structure is beneficial for individuals seeking to maximize tax-advantaged growth potential of their retirement funds.

Checkbook icon to display that you have checkbook control when you establish an LLC or trust for your Self-Directed IRA.

Checkbook Control:

The ability to have checkbook control of your Self-Directed IRA provides you with an even higher degree of flexibility with your investing.

dollar bill icons to display estate planning with a Directed Trust.

Estate Planning:

A Self-Directed IRA can play a role in estate planning by facilitating the seamless transfer of assets to beneficiaries while minimizing tax implications.

Why Consider a Directed Trust?

For individuals with substantial assets and specific financial goals, a Directed Trust can offer several benefits of its own. Here's why you might consider a Directed Trust:

Icon of a business man, briefcase, and gear to show that a Directed Trust can help individuals efficiently manage their wealth.

Wealth Management:

Directed Trusts are designed for individuals looking to efficiently manage their wealth. They provide the necessary tools and flexibility to navigate the complex world of high-value assets.

Icon of a document labeled "Tax" and dollar bills and a percentage sign to show that Directed Trusts can help mitigate estate taxes.

Tax Mitigation:

Directed Trusts can help mitigate estate taxes, offering an opportunity to protect your wealth and reduce any possible financial burden on your beneficiaries.

Umbrella icon with a coin and a bag of money underneath to show that Directed Trusts incorporate asset protection strategies to safeguard your wealth from potential liabilities.

Asset Protection:

Directed Trusts often incorporate asset protection strategies to safeguard your wealth from potential liabilities.

Protection shield with a lock inside to show that Directed Trusts provide a level of privacy in asset management so your sensitive financial information is not available publicly.


Directed Trusts provide a level of privacy in asset management, so your sensitive financial information is not available publicly.

Hand giving a key to another hand to show that a Directed Trust can be a valuable tool for multi-generational planning.

Legacy Planning:

A Directed Trust can be a valuable tool for multi-generational planning, ensuring that your wealth endures for the benefit of future generations.

Choose the Right Path for You

Your financial journey is unique to you. It’s shaped by your assets, goals, and aspirations. Understanding the distinctions between Self-Directed IRAs and Directed Trusts is the first step for an informed decision that can positively impact your financial future.

Whether you opt for a Self-Directed IRA to harness the power of tax-advantaged growth or choose a Directed Trust to preserve your legacy and protect your wealth, creative tools are within reach at Madison Trust. Schedule a free discovery call today.

Madison Trust Self-Directed IRA and Directed Trust Specialists in a meeting.

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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