Self-Directed IRA Explained: Rules, Custodians, and Where Gold Fits

A self-directed IRA follows the same tax rules as the IRA you already have. What changes is the menu of things it can own, and how much of the checking falls on you instead of the company holding the account.

What is a self-directed IRA?

You won't find the phrase in the tax code. The industry uses it for an IRA held by a custodian that lets you own things outside the usual list of stocks, bonds, mutual funds, and CDs.

Contribution limits, rollover rules, taxes on withdrawals, and required minimum distributions are the same as in any other IRA.

So why doesn't your brokerage offer one? Most IRA custodians limit accounts to stocks, bonds, mutual funds, and CDs their firm has approved. A self-directed custodian doesn't sell or approve investments. It holds whatever you tell it to buy, within the law.

What can a self-directed IRA hold?

The law doesn't hand you a list of approved investments. It names a few things an IRA can't own and a set of dealings it can't take part in, and leaves the rest open.

Custodians that take alternative assets commonly accept:

• Real estate and land
• Physical precious metals that meet the IRS standards
• Private company shares and private placements
• Promissory notes and tax lien certificates
• Crypto assets

Each custodian sets its own list, and choosing among what's allowed is up to you.

What the law keeps out

Two things can't go in any IRA: life insurance contracts and collectibles. The tax code defines collectibles as works of art, rugs, antiques, metals, gems, stamps, coins, alcoholic beverages, and other tangible personal property the IRS names.

Buy a collectible with IRA money and the IRS treats the cost as a distribution to you in that year. In a traditional IRA that's taxable income, and if you're under 59½ the 10% additional tax on early distributions can apply too.

The collectibles rule and the metals exception

Metals and coins are on the banned list. So how does anyone own gold in an IRA?

Section 408(m) of the tax code carves out an exception. These are not treated as collectibles:

• Certain U.S. Mint gold, silver, and platinum coins named in the law. IRS Publication 590-A describes the gold ones as one-ounce, half-ounce, quarter-ounce, and tenth-ounce U.S. gold coins, and the silver ones as one-ounce coins minted by the Treasury.
• Coins issued under the laws of a state.
• Gold, silver, platinum, or palladium bullion that meets the minimum fineness a regulated futures exchange requires for delivery. In practice that means at least .995 for gold, .999 for silver, and .9995 for platinum and palladium.

The bullion exception has a condition written into it. The metal has to be in the physical possession of the IRA trustee, which means a bank or an IRS-approved nonbank trustee, and in practice a depository working for it. That condition is the reason IRA gold doesn't sit in your home safe.

Rare coins, graded older coins, and jewelry fall outside the exception. For a product-by-product view, see which gold coins and bars an IRA can hold. Our guide to coins vs. bullion covers which products qualify and why some cost far more than others.

What does the custodian do, and what doesn't it do?

An IRA has to be held by a bank, a federally insured credit union, a savings and loan association, or another entity the IRS has approved to act as trustee or custodian. That company keeps the records, holds title to the assets for your IRA, sends your statements, and files the tax forms: Form 5498 for money going in and Form 1099-R for money coming out.

That's roughly where its job ends. The investor alert from the SEC, FINRA, and state securities regulators, last updated in 2023, puts it bluntly. Self-directed IRA custodians:

• don't sell investment products or give investment advice,
• don't evaluate the quality or legitimacy of any investment in the account, or of the people promoting it, and
• don't verify the accuracy of financial information provided for an investment.

Its only responsibility, the alert says, is holding and administering the assets.

What that means for your statement

The same alert warns that custodians often list an asset at its original purchase price, or at a value the promoter supplied.

Gold has a public price you can look up any day. For what a dealer would pay you, ask for its buyback price in writing. Our guide on who does what in a gold IRA shows what each company's paperwork does and doesn't reveal.

Prohibited transactions and disqualified persons

With a self-directed IRA you can break these rules by accident, because you're the one arranging the deals.

Your IRA can't do business with you or with the people closest to you. The tax code calls those people disqualified persons.

Who counts as a disqualified person?

• You, as the person who directs the account
• Your spouse
• Your parents, grandparents, and other ancestors
• Your children, grandchildren, and other lineal descendants, plus their spouses
• Anyone who is a fiduciary of the account or provides services to it
• A company, partnership, or trust in which those people own 50% or more

Brothers and sisters aren't named in the family definition, though other parts of the rules can still catch a deal with one of them. If family is anywhere near an IRA transaction, get tax advice before you sign.

What counts as a prohibited transaction?

The IRS gives these examples for IRAs:

• Borrowing money from the IRA
• Selling property to it
• Using it as security for a loan
• Buying property for personal use, now or in the future, with IRA funds

Put that in metals terms. Say you have gold coins in a safe at home and you'd like them inside your IRA. You can't sell them to your own IRA. Your IRA can't buy coins from your daughter's coin shop either.

What happens if you break the rule?

If you or your beneficiary engage in a prohibited transaction, the account stops being an IRA as of the first day of that year. The IRS treats everything in it as paid out to you at fair market value on that date.

The size of the deal that caused it doesn't matter. Say you have $300,000 in a traditional self-directed IRA and a $20,000 deal goes wrong: the full $300,000 can land on that year's tax return, with the 10% additional tax on top if you're under 59½. Other disqualified persons who take part can owe a separate excise tax of 15% of the amount involved, rising to 100% if the deal isn't undone in time.

The IRS explains the rules on its prohibited transactions page. Read it before you do anything unusual.

What does a self-directed IRA cost?

The regulators' alert lists the kinds of fee to ask about: account opening fees, annual account fees, administrative fees, transaction fees, and fees tied to the particular asset.

A metals account has a yearly custodian fee and a yearly storage fee, and the amounts differ by firm, so ask for the fee schedule in writing. The dealer's premium on the metal is separate from both. We go through every line in our gold IRA fee guide.

What do regulators say to check?

Self-directed IRAs are legal, and regulators publish an alert on how to use one well. The points it lists:

• No review. You alone are responsible for evaluating and understanding the investment.
• Thin information. Alternative assets may come with limited disclosure and unaudited numbers.
• Hard to sell. Some assets can't be sold quickly, which matters when you retire or have to take required minimum distributions.
• Fake custodians. Fraudsters may use a fake custodian to take in money. The IRS publishes a list of approved nonbank trustees. The alert notes it isn't a complete list of every custodian, so a name that's missing calls for more research.

Their advice is plain. Avoid unsolicited offers to move retirement money into a new self-directed IRA. Check the seller's license or registration yourself. Treat "guaranteed," "risk-free," and "absolutely safe" as warning signs. The full alert is at Investor.gov.

The Commodity Futures Trading Commission has its own advisory on gold and silver pitches aimed at retirement savings. It points out that precious metals dealers are typically salespeople paid on commission and, unlike financial professionals with a fiduciary responsibility, aren't obliged to put your interests first. That's no reason to avoid them. It's a reason to compare written quotes yourself. Our guide to gold IRA scams and red flags shows what a fair deal looks like next to a bad one.

Where do precious metals fit?

A gold IRA is a self-directed IRA that happens to hold metal. Of all the things these accounts can own, bullion is one of the easier ones to understand. It has a published price and standard products, and the process is well worn: the dealer sells, the custodian records, the depository stores. Our precious metals IRA guide covers silver, platinum, and palladium as well.

Comparing prices and deciding the amount are yours to do. Our guide on how to check a gold IRA company's background lists where to look.

When do you need one?

You need a self-directed IRA when there's a specific asset you want in a retirement account that a brokerage IRA can't hold, such as physical gold.

For a metals account, here's what to have:

• Money in an IRA or an old 401(k). It moves in by transfer or direct rollover, with no tax on the move.
• Enough to meet the company's minimum. Each company sets its own. The one we refer readers to asks for at least $50,000.
• The fee schedule in writing. Yearly fees are mostly flat, so they're a smaller share of a larger account. $350 a year, to pick a round number, is about 0.23% of $150,000.

IRA metal stays with the trustee. Coins you want to hold yourself are bought with money outside your retirement accounts, which our guide to buying physical gold outside an IRA covers. For how physical metal and a gold fund differ, see gold IRA vs. gold ETF, and for the fit questions, who a gold IRA is for.

Common questions

Does the custodian check my investment before buying it?

It checks that the paperwork is complete and that the asset is a type it accepts. Regulators say plainly that it doesn't evaluate the quality or legitimacy of the investment or verify the financial information behind it.

Can I keep self-directed IRA gold at home?

The bullion exception in the tax code applies only when the metal is in the physical possession of the IRA trustee. Taking possession yourself risks having it treated as a distribution. We'd treat any "home storage IRA" pitch with real caution and ask a tax professional first.

Can I move gold I already own into a self-directed IRA?

Selling your own property to your IRA is a prohibited transaction, and IRA contributions have to be made in cash. So the IRA buys its metal from an unrelated dealer.

Can I roll a 401(k) into a self-directed IRA?

Usually, once you've left the employer. A direct rollover from the plan to the new custodian avoids withholding and the 60-day deadline.

We base our guides on primary sources such as the IRS, the Department of Labor, and federal regulators. Read our editorial policy. Spot an error? Tell us.