What Business Owners Should Understand About Self-Directed Retirement Accounts

What Is a Self-Directed Retirement Account?

A self-directed IRA is generally a traditional or Roth IRA held with a custodian willing to administer a broader selection of investments than a standard brokerage IRA.

A typical brokerage IRA might offer publicly traded stocks, bonds, mutual funds, exchange-traded funds, and similar securities. A self-directed account may permit assets that don't trade on a public exchange.

The U.S. Government Accountability Office has identified examples such as real estate, private equity, certain precious metals, and virtual currencies among the unconventional investments available through some self-directed IRA custodians. Its research examined IRA information from tax years 2011 through 2016 and identified several categories of transactions presenting potential compliance concerns.

 

"Self-directed" doesn't mean the account owner takes possession of retirement funds and invests them personally. The IRA remains a tax-advantaged account, and an eligible custodian or trustee still has a role in holding and administering its assets.

That distinction matters.

A business owner may identify an investment, perform due diligence, and decide whether it fits the portfolio. The custodian generally facilitates the transaction on behalf of the IRA according to its procedures. Custodians aren't automatically responsible for deciding whether an asset is a sensible investment for that particular investor.

 

Why Entrepreneurs Consider Self-Directed Accounts

Entrepreneurs often think differently about investing because their careers have already exposed them to privately held companies, property, lending arrangements, acquisitions, and other assets outside public markets.

Some therefore want part of their retirement portfolio to include investments they already understand.

An owner who has spent 25 years evaluating commercial property, for example, may feel more comfortable analyzing a rental building than selecting among hundreds of public equities. Another entrepreneur may have extensive experience reviewing private companies or private debt.

SDIRAs can provide a vehicle for considering those asset classes within a retirement account.

The broader context is significant. According to the Investment Company Institute's 2025 research, approximately 59.6 million U.S. households, or 44.2% of households, owned an IRA in mid-2025, with total IRA assets reaching roughly $18 trillion. IRAs accounted for about 39% of the U.S. retirement market, compared with 24% two decades earlier. (Investment Company Institute)

Entrepreneurs may consider self-direction for several reasons:

• greater access to private or alternative investments;
• an opportunity to diversify assets beyond conventional securities;
• familiarity with a particular type of business or property;
• interest in investments unavailable through their regular brokerage;
• a desire to place certain long-term investments within a retirement structure.

None of those reasons makes an SDIRA automatically superior to a conventional IRA. Greater choice can also create more administrative work, higher fees, harder valuations, reduced liquidity, and additional opportunities to make costly mistakes.

 

What Can a Self-Directed IRA Hold?

The investment menu depends partly on the custodian, because not every SDIRA provider supports every permissible asset.

Possible holdings may include:

• residential or commercial real estate;
• private company interests;
• private equity;
• certain precious metals;
• private notes or debt;
• tax liens;
• certain digital assets;
• other alternative investments permitted under applicable rules and accepted by the custodian.

Real estate receives particular attention because property is familiar to many entrepreneurs. Investors researching real estate in retirement accounts should understand that ownership through an IRA differs substantially from buying property personally.

For instance, an IRA-owned property is an investment of the retirement account rather than the owner's personal property. That distinction affects how expenses, income, improvements, financing, and personal use must be handled.

Alternative investment access also shouldn't be confused with unrestricted investment authority. Certain assets and transactions remain prohibited, and individual custodians can impose narrower investment policies of their own.

 

The Custodian's Role Doesn't Replace Your Due Diligence

An SDIRA requires a custodian or trustee, but business owners shouldn't interpret the custodian's involvement as an investment recommendation.

That can be one of the easiest misconceptions to make.

A custodian may process purchases, maintain records, hold assets in the account's name, receive documentation, report certain information to the IRS, and complete other administrative duties. The investment itself may still require extensive evaluation by the account owner and outside professionals.

Before committing retirement assets to an alternative investment, consider questions such as:

• Who controls the underlying business or property?
• How is the investment valued?
• Can its value be independently verified?
• What financial statements are available?
• How does the investment generate returns?
• What could cause a permanent loss?
• How difficult will the asset be to sell?
• Are there related-party relationships that could create a compliance problem?
• Could the investment generate additional tax obligations inside the account?

Business owners may be experienced investors, but expertise in one field doesn't automatically carry over to another. Someone who understands manufacturing acquisitions isn't necessarily equipped to value undeveloped land or a private lending fund.

 

Rules That Can't Be Ignored

The tax treatment of retirement accounts depends on following the rules attached to them. With an SDIRA, one of the biggest areas to understand is the prohibited-transaction framework.

Federal rules restrict certain direct and indirect transactions between retirement accounts and "disqualified persons."

According to the IRS rules on prohibited transactions, prohibited arrangements can include certain sales, exchanges, leases, loans, extensions of credit, transfers, and uses of plan assets for the benefit of a disqualified person.

 

Depending on the circumstances, disqualified persons can include the account owner, certain family members, fiduciaries, and entities in which specified disqualified persons hold substantial ownership interests.

This is where seemingly ordinary business arrangements can become complicated.

Suppose an IRA purchases a property. Could the owner stay there temporarily? Could the owner's company lease office space from it? Could the owner personally perform work on the property? Could a relative provide financing?

Those aren't questions to answer casually. An arrangement that makes business sense outside a retirement account may create serious problems when retirement assets and related parties are involved.

The financial consequences can also be substantial. The IRS states that a disqualified person participating in a prohibited transaction may face an initial excise tax of 15% of the amount involved for each year or part of a year in the taxable period. If the transaction isn't corrected within the applicable period, an additional tax equal to 100% of the amount involved may apply. (IRS)

Depending on the situation, an IRA owner's prohibited transaction can have other serious tax consequences as well.

For a financially sophisticated investor, the takeaway isn't that alternative investments should automatically be avoided. It's that compliance has to be investigated before money moves, not after a transaction has already closed.

 

Contribution Limits Still Apply

Access to a wider investment menu doesn't change the normal contribution framework for an IRA.

For 2026, the IRS increased the annual IRA contribution limit to $7,500, up from $7,000. The age-50-and-older IRA catch-up amount is $1,100 for 2026, bringing the applicable total to $8,600 for someone who qualifies.

 

For comparison, employee elective deferrals to 401(k), 403(b), and most governmental 457 plans rose to $24,500 in 2026, while the general age-50 catch-up contribution for applicable employer plans increased to $8,000.

Those limits are worth separating from the value of assets already inside an account. A business owner with a large IRA may have accumulated it over many years or transferred eligible retirement assets from another plan.

Rollovers have historically been an important source of IRA assets. A 2024 GAO report citing 2022 household data noted that 60% of households owning traditional IRAs reported having rolled money from an employer-sponsored retirement plan into an IRA. (U.S. Government Accountability Office)

Anyone considering a contribution, conversion, transfer, or rollover should have the specific transaction reviewed for its own tax consequences.

 

Liquidity Can Become a Bigger Issue Than Expected

Alternative assets can behave very differently from publicly traded securities.

If an IRA owns a publicly traded ETF, selling part of the position may take seconds during market hours. Selling a privately held business interest, property, promissory note, or other illiquid asset could take months—or there may be no willing buyer when cash is needed.

That matters because retirement accounts can develop cash needs of their own.

An IRA-owned property may require repairs, taxes, insurance, association fees, or other expenditures. A private investment could issue a capital call. At some point, the owner may also face distribution requirements depending on the type of account and the owner's circumstances.

A portfolio concentrated in illiquid holdings could therefore be valuable on paper while having relatively little cash available.

Before investing, ask a straightforward question: How will the IRA meet its future obligations if this asset can't be sold quickly?

Keeping adequate liquidity inside the account can be just as important as selecting the investment itself.

 

Fees and Valuation Deserve Attention Too

Standard brokerage accounts have pushed investors toward relatively simple fee structures, especially for publicly traded securities. Alternative assets can involve more layers.

An SDIRA provider might charge account-opening fees, annual administration fees, transaction fees, asset-specific charges, wire fees, document-processing costs, or other expenses.

The underlying investment may have fees as well.

For a $25,000 investment, several hundred dollars in recurring administrative costs can affect returns differently than they would on a $500,000 investment. Fees therefore need to be evaluated in dollars and as a percentage of the capital committed.

Valuation creates another complication.

Public stocks provide observable market prices throughout the trading day. A private company or property may not. Some retirement reporting obligations still require asset values, which raises the question of how those values will be established and documented.

The GAO has specifically highlighted hard-to-value assets and prohibited transactions as areas where IRA compliance can become difficult. Its review of self-directed IRAs also recommended improvements in IRS guidance and oversight surrounding unconventional investments.

 

The Investment Risk May Be Different, Not Lower

Alternative investments are sometimes presented as a diversification tool. They can serve that role, but "alternative" isn't another word for "safe."

A private investment may involve:

• limited financial disclosure;
• uncertain valuations;
• concentrated exposure to one asset or borrower;
• long holding periods;
• limited resale markets;
• leverage;
• fraud risk;
• business failure;
• regulatory or tax complications.

Business owners should also consider concentration across their entire balance sheet.

If most of your net worth already depends on a private operating company, adding several more private business investments to your retirement account may broaden the number of holdings without meaningfully reducing exposure to similar economic risks.

Diversification should be evaluated across your personal assets, retirement accounts, business ownership, real estate, debt, and other investments—not one account in isolation.

 

Questions to Ask a Qualified Tax or Financial Professional

Self-directed retirement accounts sit at the intersection of investing, retirement planning, tax law, and sometimes business or real estate law. That makes professional advice particularly valuable before a transaction occurs.

Useful questions to discuss include:

• Would an SDIRA fit my overall retirement and investment strategy?
• Should this asset be held inside a retirement account at all?
• Who would be considered a disqualified person in my situation?
• Does the proposed investment involve any direct or indirect prohibited transaction?
• Could my company, family members, partners, or related entities create conflicts?
• Who will value the asset, and how often?
• What liquidity should remain in the account?
• What fees will the custodian and investment charge?
• Could the investment generate unrelated business taxable income or other tax obligations?
• What happens if I need to exit the investment?
• What documentation should I retain?
• How would future required distributions be handled if most of the account were illiquid?

The more complicated the ownership structure, financing arrangement, or relationship among the parties, the more important it becomes to obtain advice tailored to the actual transaction.

 

Conclusion: More Control Also Means More Responsibility

Self-directed retirement accounts can appeal to entrepreneurs because they expand the range of investments available within a retirement account. Real estate, private businesses, private equity, certain metals, and other alternative assets may become possibilities that a conventional brokerage IRA doesn't offer.

But investment access is only half of the equation.

An SDIRA remains a regulated retirement account. Custodians play an administrative role, contribution rules still apply, alternative investments may be difficult to value or sell, and fees can be more complicated than those associated with conventional securities.

Above all, prohibited-transaction rules deserve careful attention. Transactions involving an account owner, relatives, businesses, or other disqualified persons can create consequences far out of proportion to an apparent convenience or small financial benefit.

For an experienced business owner, a self-directed account may be worth investigating when alternative assets genuinely fit a broader retirement strategy. The better starting point isn't "What can I buy?" It's a more disciplined set of questions: How will this investment work inside a retirement account? What rules apply? Who is involved? What happens if circumstances change? And has a qualified professional reviewed the arrangement before the IRA commits capital?

Those questions can help separate thoughtful self-direction from unnecessary retirement-account risk.