Self Directed IRA

With a self directed individual retirement account (IRA) you may have expanded investment options that go beyond having investments in stocks, bonds, mutual funds and other types of traditional investments.

A self directed IRA gives you the freedom and flexibility to choose how you want to invest your savings.   You may not only invest in the stock market, but also in a wide variety of other types of assets, such as mortgages, notes, real estate, precious metals and private placements. This means you can invest your IRA funds into investments you know and are comfortable with, such as real estate.

The term “self-directed” simply means that you as the account owner have control over how and where to direct your IRA investments. With this IRA account, you may purchase real estate, limited partnerships, commercial paper, gold, commodities and many, many other types of assets, not just investment in stock or bond market related instruments.

Permitted IRA Investments

Below is a partial list of assets you may invest your self-directed IRA:

  • Apartment Buildings, Co-Ops, and Condominiums
  • Building Bonds
  • Commercial Paper
  • Commercial Property
  • Foreclosures
  • Gold Bullion
  • Gold and Silver Coins
  • Improved or Unimproved Land (Leveraged or Un-Leveraged)
  • Joint Ventures
  • Leases
  • Limited Liability Companies
  • Limited Partnerships
  • Offshore Property
  • Securities, Stocks, Bonds, Mutual Funds
  • Single Family and Multi-Unit Homes
  • Tangible Asset Deeds
  • Tax Lien Certificates
  • Trust Deeds and Mortgages
IRA Investments You Cannot Make

There are certain types of investments that are not permitted within a self-directed IRA. Those include life insurance, collectibles (with some exceptions for coins and metals), and S Corporations.

IRA Investment Transactions You May Not Do

Your IRA has been permitted by the IRS to benefit you when you retire, but not before.   Any kind of transaction which would provide you with an immediate financial gain, or a transaction involving a “disqualified person”, are not allowed. If you engage in any such transactions, you may be subject to substantial taxes and penalties.   For a comprehensive list of prohibited transactions, please refer to IRS Section 4975 ( (Adam: could you make this a link to clicking on ‘IRS Section 4875’)

There are certain persons who are considered disqualified persons:

  • The IRA Holder and his or her spouse
  • The IRA holder’s lineal descendants, ascendants and their spouses
  • Investment advisors and managers
  • Any corporation, partnership, trust or estate in which the IRA holder has a 50% or greater interest
  • Anyone providing services to the IRA, such as the trustee or custodian.

A common use of self directed IRAs is the purchase of real estate. However, you may not purchase, for example, rental property with your IRA and yourself live in it, allow a child to live in it, or their spouses, or any other disqualified person! Nor can it be used for vacation property or allow other family members to use it.

Prohibited Transactions

It is forbidden to use your IRA for the following transactions or purchases:

  • Borrow money from the IRA for your own use
  • Sell, exchange or lease property you already own to your IRA
  • Transfer IRA income or assets to disqualified persons
  • Lend IRA money or extend IRA credit to disqualified persons
  • Furnish goods, services or facilities to disqualified persons
  • Allow fiduciaries to obtain or use the IRA’s income or assets for their own interest or use

The above is only a partial but not complete list of prohibited transactions.

Real Estate and Your IRA

There are numerous ways you can invest your retirement funds in real estate.   Your IRA pays cash for the investment property and thereby holds title to the property. Your IRA borrows money to purchase a property with a non-recourse loan and the leverage property is held in your retirement account.

The preferred way, however, is for your IRA to hold an interest in a Limited Liability Company (LLC). The title to the property is held in the name of the LLC. The reason this is the preferred way to hold property is that the LLC may provide asset protection in the event of lawsuits or other risks.   Also, subject to certain restrictions, the IRA owner can be the manager of the LLC and thus more easily manage the property, such as signing checks, contracts and receive and pay billings.

But you cannot use any old existing LLC. It must be new, and it must also have a specially tailored operating agreement which spells out compliance with self-directed IRA laws. You cannot use an operating agreement you download off the internet, or even a generic one that another attorney gives you.

Legal and Tax Advisor

Using your self-directed IRA to purchase alternative investments involves many pitfalls and traps, so you must receive appropriate advice from your tax and legal advisor before initiating this strategy. A mistake could cost you taxes, interest and penalties! The above article only touches on a few of the necessary requirements, and constitutes legal information but not legal advice.

James Morgan Law

James Morgan, Esq., LL.M. (Tax), CFP® is an attorney and can draft the specialized LLC operating agreement needed for this type of transaction. James also has a Masters in Tax law and may provide appropriate tax advice to comply with regulations for self-directed IRA non-traditional investments.


390 Interlocken Crescent, Suite 350, Broomfield, Colorado 80021
Mon-Sun: 8am – 8pm

CONTACT JAMES MORGA LAWCall us today, e-mail us or leave a message

Get a free callback

    Please note: Our law firm is located in Denver, Colorado. James Morgan, attorney, also has a Masters in Tax Law from Denver University and is a Certified Financial Planner.
    390 Interlocken Crescent, Suite 350, Broomfield, Colorado 80021

    Follow us:


    This web site is designed for general information only. Use of this website is subject to the Terms of Use.