A Step-by-Step Guide to Opening a New Self-Directed IRA

Estimated reading time: 3 minutes(Last Updated On: April 12, 2021)

If you’re looking to expand the ways that you can invest your retirement savings, then there’s a good chance you’ve heard something about self-directed IRAs. These IRAs are “self-directed” in the sense that you have a much greater opportunity to invest in all the investments types permitted within the IRA structure (rather than just the types of investments that a traditional custodian like your bank or investment brokerage will allow). Once you’ve done the research and decided that a self-directed IRA is right for you, here are the steps to opening a new account.

Find a Suitable Custodian. Most IRA custodians do not let you invest in the full range of permitted assets and investments. These traditional custodians are often the ones that you see advertising their services most widely; your local banks, credit unions and discount brokerage firms. Many of these firms offer low or no annual fee deals for their services, but in this case you get what you pay for – these custodians will only permit you to invest in things such as stocks, bonds and mutual funds, but not in real estate, private equity, precious metals and more. Instead, look for a custodian that specializes in self-directed IRAs, such as Quest Trust Company.

Complete the Paperwork and Fund Your Account. As with any other IRA, once you select a custodian and complete the required paperwork you have a number of different options for funding your self-directed IRA. In general, you can make direct contributions to your new IRA, to the extent permitted by the IRS regulations (up to $6,000 per year, or $7,000 per year if you’re age 50 or older). But the amount of your permitted contribution, as well whether those contributions can be deducted from your current year’s tax returns, will depend on the facts and circumstances of your particular situation, whether you’re covered by a retirement plan at work, and whether your self-directed IRA was set up as a traditional or a Roth IRA.

Use IRA Rollovers to Boost Your Balance. While you’ll certainly be able to grow your account by making the maximum direct contributions each year, many investors find that the best way to accumulate the largest possible balance in their self-directed IRAs is by rolling over the balances from any other IRAs they may have. Keep in mind that if you participate in a 401(k) plan at work, when you leave that job you canroll your entire account balance into an IRA. Because maximum contribution levels are much higher with 401(k)s than IRAs, many savers accumulate significantly more in 401(k) accounts (which, of course, can be rolled over into an IRA when the leave that company).

Note that you generally can’t contribute in-kind assets to fund your IRA. For example, an attempt to sell a piece of real estate that you own into your self-directed IRA would be considered prohibited “self-dealing” under the applicable IRS regulations.

The process for opening a self-directed IRA is basically the same as opening any other IRA. Find a custodian who makes the process as easy as possible, such as Quest Trust Company, and you’ll have your new self-directed IRA open in no time.