Alternative Investments in an IRA: Self-Directed Investing Strategies

April 8, 2023
Written by Peter Anderson

Investing your money in a retirement account is one of the smartest things you can do to secure your financial future. But what if you could take that security a step further and explore alternative investments within an IRA?

That's where self-directed investing comes into play! Self-directed IRAs allow investors to put their funds into assets such as real estate, private placements, hedge funds, commodities, and other non-traditional investments that are not available through standard brokerage accounts.

In this article, we'll discuss some of the advantages and disadvantages of using a self-directed IRA for alternative investments and provide strategies on how to get started.

So keep reading to learn more about how self-directed investing can help you reach your long-term financial goals!

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Understanding a SDIRA (Self-Directed Ira)

A self-directed individual retirement account (SDIRA) is a type of IRA that allows individuals to invest in alternative investments. These alternative investments include real estate, precious metals, private placements and much more.

Unlike traditional IRAs, which are mostly limited to stocks, bonds and mutual funds, the SDIRA offers greater diversification options.

The biggest advantage of an SDIRA over other types of IRAs is its flexibility. Because it doesn’t have restrictions on what can be invested in or how those investments should be managed, you can customize your portfolio according to your own risk tolerance and financial goals.

You also don’t need to worry about broker commissions or fees because you manage the account yourself without having to rely on a third party advisor.

Plus, as long as all guidelines are followed correctly and taxes paid appropriately when due, all gains within the SDIRA will not be taxed until withdrawal from the account.

With these advantages in mind, let's explore further some investing strategies for an SDIRA.

Invest in a Precious Metal IRA

Investing in a precious metal IRA is an increasingly popular way to diversify your retirement portfolio.

Precious metals, such as gold and silver, have historically been used as investments because they tend to maintain their value over time, making them a hedge against inflation.

Investing in physical precious metals can provide protection against market volatility and political uncertainty.

When considering which types of precious metals to invest in for your IRA, it’s important to understand the different categories available: bullion bars or coins; numismatic coins (collectible coins with rare dates); and semi-numismatics (coins that have both collectible and investment value).

Gold is one of the most popular options for investors since its price tends to remain steady even when other markets are volatile.

Silver is another common choice due to its affordability compared to gold—it may be easier for some individuals to start out investing with smaller amounts.

Platinum and palladium are also viable options but far less liquid than gold and silver.

It's essential to research each option thoroughly before deciding what percentage of your IRA should be invested in precious metals.

That's because these investments come with specific tax implications that must be understood prior to making any decisions about how much you want allocated toward this type of asset class.

For example, the IRS requires non-IRA holders who purchase more than $10k worth of certain gold items within 12 months pay taxes on those transactions at 28%.

It's smart then, if you're new to this kind of investing strategy, to consult a financial advisor or accountant first before putting funds towards something like a precious metal IRA so that you know exactly what rules apply and how best approach setting up such an account based on individual circumstances.

With careful planning and research beforehand though, many people find that adding an allocation of physical metals into their retirement portfolios offers considerable benefits.

What Percentage Should You Invest in Precious Metals?

It’s important to consider the percentage you should invest in precious metals when constructing your self-directed IRA.

When it comes to alternative investments, precious metals can provide a hedge against market volatility and act as an inflationary counterweight for other assets in your portfolio. 

Here are a few tips to help guide your decision:

* Consider current market conditions - Precious metal prices tend to fluctuate with global economic events, so it pays to stay informed about macroeconomic trends before investing.
* Look into diversification opportunities – Investing in a mix of gold, silver, palladium and platinum can protect against losses if one type of metal suffers a downturn.
* Think about storage options – Physical bullion or coins stored within an ETF account by an approved custodian is typically the best option for storing precious metals within an IRA.
* Weigh liquidity concerns – It may take longer to liquidate certain types of physical metals than more traditional asset classes such as stocks and bonds.

At the end of the day, there’s no single answer on how much of your investment dollars should be allocated towards precious metals.

Each investor must first define their financial goals and risk tolerance levels before deciding which portion they want to devote towards this asset class. From there, careful consideration should be given to factors like market outlook, diversification strategies and storage logistics prior to committing funds.

This will help ensure that any decisions made align with long-term objectives and maximize the potential benefits associated with holding physical metals within a retirement account.

With these points in mind, investors can then look towards adding real estate investments into their portfolios for even greater diversification advantages over time.

Investing in Real Estate

Investing in real estate can be a powerful strategy for diversifying an IRA portfolio, as it offers potential for both capital appreciation and cash flow.

Real estate investments offer higher returns than more traditional investments like stocks and bonds, but also come with additional risks--such as the costs associated with repairs or vacancies.

When investing in real estate through an IRA, you have several options.

One is to purchase rental properties directly; however, this requires significant knowledge of the market and expertise managing tenants and property issues.

Alternatively, you may choose to invest in REITs (Real Estate Investment Trusts). A REIT is a publicly traded security that owns income-producing real estate or mortgages on such properties.

By purchasing shares of a REIT rather than owning the actual asset outright, investors are able to reduce risk while still gaining exposure to the sector. Most REITs pay dividends which provide another source of income from your IRA investment.

What Are REITs (Real Estate Investment Trusts)?

Building on the knowledge of investing in real estate, there is another way to diversify and increase your portfolio: Real Estate Investment Trusts (REITs).

REITs are a type of security that invests in income-producing real estate.

These investments can be found through publicly traded companies or private entities which specialize in managing commercial properties such as shopping malls, office buildings, hotels, apartments, health care facilities and other types of real estate assets.

REITs provide investors with access to professionally managed portfolios without having to purchase property themselves. They also offer higher returns than traditional stocks due to their ability to generate immediate cash flow from rent payments.

They are less volatile than direct investment in real estate since they don’t require any management fees or maintenance costs associated with owning individual properties.

Many REITs have tax advantages compared to other forms of investments because some dividends generated by these trusts are not subject to taxation at the individual level.

As you consider alternative investments for an IRA account self-directed investing strategies may include purchasing shares in a REIT.

Although this strategy does come with its own set of risks related to market volatility it can be an excellent option for those looking for long term growth potential while avoiding much of the hassle associated with directly managing rental properties.

With careful research and understanding of risk versus reward ratios, you can determine if investing in a REIT is right for you.

Invest in LLCs (Limited Liability Companies)

Investing in an LLC, or Limited Liability Company, is one of the many alternative strategies for self-directed IRA investing. This structure can be used to hold real estate investments, business startups and more.

The main advantage of setting up an LLC within a self-directed IRA is that it provides investors with additional liability protection while allowing them to maintain control over their assets.

Pros: Tax Advantages, Asset Protection, Control & Management Rights

Cons: High Setup Costs, Complex Regulatory Requirements, Lengthy Setup Processes

Neutral: Autonomy and Flexibility, Fiduciary Responsibility

While there are some advantages associated with investing in LLCs through a self-directed IRA—such as tax benefits, asset protection and control rights—there are also some drawbacks to consider.

Setting up an LLC comes with high start-up costs, complex regulatory requirements and lengthy setup processes. When using this strategy within an IRA account, investors will have fiduciary responsibility for the assets held by the LLC which require ongoing monitoring and maintenance of records.

Despite these downsides, however, investing in an LLC offers autonomy and flexibility that may make it worth considering as part of your overall retirement plan goals.

Invest in Cryptocurrency IRA

Investors who are looking to diversify their retirement portfolio and gain exposure to alternative investments can now consider cryptocurrency IRA.

Cryptocurrency IRAs offer the same tax benefits as traditional IRAs, but with the added benefit of potentially higher returns that come from investing in digital assets like Bitcoin, Ethereum, Litecoin, and other cryptocurrencies.

Here's what investors need to know about investing in a cryptocurrency IRA:

1) Be sure to pick an IRS-approved custodian to get started – The first step for any investor interested in setting up a crypto IRA is to find an IRS-approved custodian or broker who will hold your account and handle all transactions related to buying, selling, and trading cryptocurrencies within it.

2) Understand how taxes work when you invest in cryptos – Since cryptos are considered property by the IRS, they are subject to capital gains tax whenever profits are realized through selling them off.

Investors should understand these rules before making any trades.

3) Diversify across different types of coins – Crypto prices tend to be quite volatile and unpredictable so it’s always important for investors to diversify their portfolios across multiple types of coins.

This way if one coin fails then there’s still potential for others within the portfolio to do well.

Crypto IRAs provide investors with access to a new asset class that has proven itself capable of providing healthy returns over time while also offering the same kind of tax advantages associated with more traditional forms of retirement savings accounts.

For those seeking out options beyond stocks, bonds, ETFs and mutual funds, adding some form of cryptocurrency into their portfolio could make sense - especially given its volatility compared against other assets classes.

Before taking the plunge though, it’s vital that investors take the time necessary to educate themselves on how this space works and become comfortable with how taxes play a role too - because at the end of day no one wants surprise tax bills down the road!

Reasons to Invest in Alternative Assets

Having discussed the potential benefits of investing in cryptocurrency IRA, it's important to consider other types of alternative investments that may be available within a self-directed IRA account.

Investing in alternatives can provide investors with an opportunity to diversify their portfolios and potentially increase returns over time.

Alternative investments include real estate, private equity funds, commodities like gold or silver, venture capital funds, hedge funds, and more.

The advantages of investing in alternatives are numerous:

Diversification - One of the primary reasons for investing in alternative assets is for diversification purposes since these investments tend to have different characteristics than traditional stocks and bonds;

Low correlation - Unlike many traditional asset classes such as stocks and bonds which often share similar correlations, alternative investments typically have low correlations with each other allowing them to reduce portfolio volatility;

Tax Advantages - When held in a retirement account such as an IRA or 401k many alternative investment strategies can offer tax advantages when compared to traditional investments;

High Potential Returns - While higher risk generally comes with higher rewards, some alternative investments do possess high yield potentials due to leverage options or unique strategies employed by managers.

With so much potential benefit associated with making use of an alternative investment strategy within your self-directed IRA there are several factors you need to consider before diving head first into any one kind of asset class.

In order to make sure you're choosing wisely it's important to assess what type of investor you are and how much risk you're willing to take on for the chance at greater returns down the road.

How to Decide if a Self-Directed IRA Is Right for You

Making the decision to invest in a self-directed IRA is an important one and shouldn't be taken lightly. It requires thoughtful consideration of numerous factors, such as your financial goals, risk tolerance, and investment expertise.

Symbolically speaking, it is like standing at a crossroads with two paths ahead - you must decide which path will bring you closer to achieving your financial objectives.

The first step in deciding whether or not a self-directed IRA is right for you is to evaluate your current situation and needs.

Are you looking for short-term investments that can offer immediate returns? Or are you more interested in long-term investments that have the potential to generate greater returns over time?

This assessment should include considerations about diversification - what types of assets would make up this portion of your portfolio?

How much liquidity do you need from these investments? Do you have sufficient knowledge to manage them on your own?

These questions are just the beginning. You'll also want to consider costs associated with setting up and maintaining a self-directed IRA, as well as any tax implications related to certain alternative investments contained within the account.

Think through how involved you want to be when it comes to making decisions and monitoring results; if hands-on involvement isn't something that interests or appeals to you then a self-directed IRA may not be the right choice.

Ultimately, choosing between traditional investments or alternative ones held in a self-directed IRA depends on each individual's unique circumstances and preferences.


In conclusion, self-directed IRAs offer investors the opportunity to diversify their portfolios and explore alternative investments.

This can be a great way for those looking for higher returns than what traditional stocks and bonds may provide.

Investing in precious metals, real estate, LLCs, and even cryptocurrency are all viable options within a SDIRA.

Investors should do thorough research before making any investment decisions as well as consider their risk appetite when determining how much they should allocate to each asset class.

Ultimately, it is up to the investor to decide if utilizing a self-directed IRA is right for them or not. The journey of investing can certainly be daunting but with careful consideration and planning, one can reap the rewards of taking on more control over their financial future with an alternate investment strategy. 

As the old adage goes: “Do your due diligence” - this has never been truer when considering venturing into unfamiliar territories such as with a SDIRA!

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