What Is a Self-Directed Roth IRA?

A Roth IRA affords some key tax benefits for savers, chiefly the ability to make tax-free withdrawals in retirement. Typically, the scope of investments available through an IRA is determined by the company that holds your accounts. A self-directed Roth IRA, however, can offer more choices for building a portfolio.

If you’re uncertain whether a self-directed Roth IRA is right for you, consider speaking with a financial advisor.

Self-Directed Roth IRA Basics

A self-directed Roth IRA is an individual retirement account (IRA) that offers you control over how your money is invested.

These accounts are offered by brokerages, just like any other type of IRA. You choose which brokerage acts as the custodian for the account.

Once you make the minimum opening deposit to open the IRA, you can decide how your money is invested. This means that the brokerage acting as your custodian may not offer you any investment advice, so you truly self-direct your account.

Self-directed Roth IRA accounts have all the features of regular Roth IRAs, including the annual contribution limit and how withdrawals are taxed. The difference is that a self-directed IRA allows you the freedom to greatly increase your portfolio’s diversification by holding alternative investments, such as real estate, commodities and limited partnerships.

There are a few key details pertaining to a self-directed Roth IRA that are crucial to know.

Self-Directed Roth IRA Overview
Annual contribution limit	Under 50 years old: $7,500 Age 50 and older: $8,000 Ages 60-63: $11,250
Tax-deductible contributions	No
Tax-free qualified withdrawals	Yes
Withdrawals	Tax-free at any time
Required minimum distributions (RMDs)	None

Compared with a self-directed traditional IRA, a Roth IRA offers more benefits for those in a higher tax bracket at retirement. There is no tax on withdrawals beginning at age 59 1/2 or older, and there is no age at which you must start taking money from your account.

Of course, you will not receive a tax deduction for your contributions the way you can with a traditional self-directed IRA. However, that may not matter as much if you are making contributions during years of lower income.

Who Can Contribute to a Self-Directed Roth IRA?

The IRS sets income-based rules for who can contribute to a Roth IRA, and those same rules apply to self-directed Roth IRAs.

For 2026, you may contribute up to the full annual limit if your modified adjusted gross income (MAGI) falls below the applicable phase-out thresholds, which are adjusted annually for inflation.

In general, full contributions are available to:

Single filers or heads of household with MAGI below the annual phase-out range
Married couples filing jointly or qualifying widowers with MAGI below the joint filer phase-out range

Once income enters the phase-out range, the allowable contribution amount is reduced, and contributions are eliminated entirely once MAGI exceeds the upper limit.

Married couples filing separate returns in 2026 may make a partial contribution to a Roth IRA if their modified adjusted gross income (MAGI) falls below the applicable phase-out threshold, which remains very limited for this filing status. As with other filers, Roth IRA contributions phase out as income rises and are no longer allowed once MAGI exceeds the annual limit.

If your income qualifies you to contribute to a self-directed Roth IRA in 2026, the greater consideration may be how a Roth contribution fits into your broader retirement tax strategy, rather than eligibility alone.

According to Scott Butler, a financial planner at Klauenberg Retirement Solutions in Laurel, Maryland, a self-directed IRA might not be the best account for just anyone.

“This is definitely not something I would recommend to the average or casual investor,” Butler says. “With a self-directed IRA, there are more ways to make a mistake and some tax traps you can easily fall into.”

Self-Directed Roth IRA Tax Guidelines

A couple review whether a self-directed Roth IRA is the right choice for them.

There are two specific rules for self-directed Roth IRAs. These rules are designed to prevent investors from abusing self-directed accounts and their tax advantages.

What Are Disqualified Persons and Prohibited Transactions?

The disqualified person rule essentially states that certain individuals may not engage in prohibited transactions.

A prohibited transaction is any improper use of your IRA by yourself or another disqualified person and includes several events.

Lending money or extending credit
Furnishing goods, services or facilities
Selling, exchanging or leasing property
Using or transferring income from the plan to a disqualified person
Any act of a fiduciary dealing with your IRA money or assets in their own interest
Any receipt of consideration by a fiduciary from anyone dealing with the IRA and its assets

A disqualified person can include several parties.

You and/or your spouse
IRA beneficiaries
Your descendants and their spouses
Plan service providers
Any company in which you own at least 50% of the voting stock
A shareholder or partner in said company who owns 10% or more of its stock

For example, you cannot use your self-directed Roth IRA as collateral for a loan or to buy property for your own personal use. Violating this rule could cause your self-directed account to lose its tax-advantaged status.

What Can You Invest in With a Self-Directed Roth Account?

Within a typical Roth IRA, your investment choices may be limited to certain types of investments.Individual stocks or bonds may also be an option, although these are less common.

With a self-directed Roth IRA, there’s much more variety.

Roth IRA vs. Self-Directed Roth IRA Investment Options

Roth IRA	Self-Directed Roth IRA
Mutual funds Index funds Exchange-traded funds (ETFs) Bond funds	Real estate Private placements Tax liens Partnerships and franchises Precious metals

However, there are some investments you can’t own in a self-directed Roth IRA.

Gems
Stamps
Collectibles
Artwork
Coins
Rugs
Antiques

“Self-directed accounts are for risk-takers who are not satisfied with the ETFs and mutual funds that are offered through traditional custodians,” says Guy Baker, founder of Wealth Teams Alliance in Irvine, California. “They’re more interested in first trust deeds, real estate partnerships, real estate investment trusts and perhaps gold and other commodities. In some cases, you can buy stock in a closely held business that is not traded on the exchange.”

Being able to expand your investment options in a self-directed IRA can allow you to look beyond stocks and bonds. The potential downside, however, is that some of the things you may choose to invest in through a self-directed account could carry a higher degree of risk.

Risks and Best Practices for Self-Directed Roth IRAs

A self-directed Roth IRA offers more investment freedom, but that flexibility comes with additional risk.

Many alternative assets, such as real estate or private placements, are less regulated than public stocks and bonds. This can make them more vulnerable to fraud, mismanagement or large losses if the investment fails. Investors must also be prepared for more complex paperwork and tax reporting requirements than with a standard Roth IRA.

Choosing a reputable custodian is essential. Self-directed IRAs must be held by a qualified custodian or trustee, but not all custodians perform the same level of oversight. Some only process transactions and will not evaluate the legitimacy of an investment or its tax implications.

To help avoid problems later, take the time to research custodians. Confirm their regulatory standing, and ensure you understand their fee structure.

Liquidity is another important factor. Assets like real estate or private equity are harder to sell quickly if you need cash. Unlike publicly traded securities, there may be no ready market for these investments. Therefore, selling could take months or even years. This makes it important to balance your portfolio with both liquid and illiquid assets so you can access funds without triggering early withdrawals or tax penalties.

Strong recordkeeping and compliance practices can protect your Roth IRA’s tax-advantaged status. Documenting all transactions, consulting with a tax professional and seeking legal advice for complex deals can reduce these risks.

By combining thorough due diligence with professional guidance, investors can use a self-directed Roth IRA effectively while minimizing potential pitfalls.

Fees, Custodian Costs and Ongoing Expenses

Self-directed Roth IRAs often involve a different fee structure than standard Roth IRAs offered by traditional brokerages. Instead of earning revenue primarily through fund expense ratios, custodians typically charge direct fees for account setup, annual maintenance and transaction processing.

Ongoing costs can vary based on the types of assets held in the account. Alternative investments may trigger additional charges for asset custody, valuation or documentation, which are billed to the IRA rather than absorbed by an investment fund.

Certain investments also create expenses outside the custodian relationship. Real estate holdings may involve property management fees, insurance, maintenance costs or legal expenses, all of which must be paid from IRA assets and tracked carefully.

Over time, these fees and expenses can reduce overall returns, particularly when combined with illiquid or low-cash-flow investments. Evaluating total costs alongside expected returns is part of assessing whether a self-directed Roth IRA aligns with an investor’s broader retirement strategy.

Bottom Line

A self-directed Roth IRA can be an important part of your retirement plan.

A self-directed Roth IRA can open up new possibilities for investing, but it’s important to consider the pros and cons carefully. If you’re not well-versed in a certain type of investment or you’re unsure of the tax rules for prohibited transactions, you could do more harm than good to your portfolio. Before diving in, take time to learn the finer points of self-directed investing and get help from a financial advisor if you need it.

Tips for Retirement Planning

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If you want to set up and plan your retirement goals, SmartAsset’s retirement calculator can help you estimate how much you may need to save to retire comfortably.
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