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Growing Your Retirement by Investing in What You Know Best

Learn about the power of Self-Directed IRAs when saving for retirement and the variety of accounts you can use.

Posted on November 24, 2021

invest what you know
Building wealth and saving enough for retirement can get overwhelming, but it doesn't have to be. Most people think that they can only invest in publicly traded investments like stock, bonds, mutual funds, and CDs, but that isn't true at all. With self-directed IRAs, you can diversify your investment portfolio into alternative assets like real estate, notes, land, oil and gas, and other private placements. The best part? It's all on your terms. Self-directed IRAs truly allow people to take back control of their retirement savings and invest in assets that make sense to them.

How is a Self-Directed IRA Different?

A self-directed IRA is like any other IRA account; the term “self-directed” is just used to describe the type of account it is. The difference between a regular traditional IRA and a truly “self-directed” IRA is the types of assets it holds. With a self-directed IRA, you have the ability to choose from a wide range of investments not traded on a stock exchange. You make all the decisions about your financial future. Most people find that they make more money and feel more confident in their investment decisions when they are able to invest into things they know and understand.

The biggest reasons people are drawn to self-directed accounts are diversification of investments and tax benefits. Self-directed IRAs allow you to truly diversify your retirement portfolio by allowing you a wide variety of private investment options, while providing tax benefits. These tax-advantaged accounts allow your earnings to grow tax-deferred, and sometimes tax-free depending on the type of account.

What Can an IRA Invest Into?

A self-directed IRA can be used to purchase almost any private asset. Common alternative investments include single family real estate, rehab properties, commercial and multifamily real estate, private loans, performing and non-performing notes, oil and gas, land, startup companies, LLCs, and other private businesses. The list goes on! The only investments that are prohibited by the Internal Revenue Service are life insurance and collectibles, such as artwork, rugs, and coins. You can read more about what is considered a collectible on the IRS website frequently asked questions.

What Types of Accounts Can be Self-Directed?

Every custodian offers different accounts. At Quest, we offer seven types of self-directed accounts, including individual retirement accounts, employer-sponsored plans, and specialty plans.

  • Traditional IRA – With the Traditional IRA, your earnings grow tax-deferred, so you only pay taxes on your gains when you make withdrawals in retirement, and your contributions may be tax deductible.
  • Roth IRA – The Roth IRA is a special retirement account where you have the ability to grow your profits tax-free.
  • SEP IRA – This self-directed tax-deferred account can be great for self-employed individuals, allowing a tax deduction for contributions made to a SEP IRA.
  • SIMPLE IRA – A SIMPLE IRA is an employer-sponsored retirement plan designed specifically for small businesses, giving employees and employers a simple way to contribute and grow this account.
  • Health Savings Account – Get the best of both worlds with an HSA with the ability to get tax-deductions on contributions and tax-free distributions for qualified medical expenses.
  • Education Savings Account – Education isn't cheap, but with a Coverdell ESA you can earn tax-free distributions on countless qualified educational expenses as you self-direct this account.
  • Solo 401k – With the extra benefits that come with this account, like checkbook control and more freedoms, many people are eager to learn how to get started – just make sure you qualify.

Self-directed accounts put you in the driver's seat allowing you complete control to select your own investments, but this also requires more effort upfront on your part. Your custodian cannot offer you investment advice, so you are responsible for doing the proper due diligence to make sure the investment is sound. Also, there are people considered disqualified parties that you cannot transact with, so it's important to educate yourself on the restrictions for these types of accounts before getting started. Quest offers regular events for networking and educational purposes, and you can check out our calendar of events here.

Self-direction can be a great option for those looking to take more control of their financial future to meet their retirement goals. If you are interested in learning more about self-directed IRAs or would like to get started, schedule a free consultation with a Quest Trust Company IRA Specialist by clicking here!

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