IRAs fall under the Internal Revenue Code and were created by congress. A self-directed IRA is a type of IRA that allows for investing alternative investments in addition to equities.

Common Types of Self-Directed IRA Alternative Investments

Real Estate

Promissory Notes

Cryptocurrency

Precious Metals

Private Placements

Tax Liens

Custodian of the Self-Directed IRA

A self-directed IRA is opened and held with the IRA custodian, but the IRA account holder makes the investment decisions hence where the self-directed part of the name comes into play.  As such, the IRA custodian’s role is passive, meaning the trust company takes title to the IRA alternative investments but only acts upon the IRA owner’s direction. The self-directed IRA custodian’s role is to also perform IRA reporting to the IRS, to withhold taxes and to provide statements to the IRA owner. 

Self-Directed IRA Opening Documents

Just like a regular IRA, a self-directed IRA is opened by signing the IRA plan agreement (aka IRA application) which the IRA custodian also signs. The IRA application also outlines the responsibilities of both the IRA account holder and the IRA custodian. Finally, the IRA account holder fills out beneficiary designation form, and contribution or transfer forms to fund the self-directed IRA.