What is a Self-Directed IRA? A Guide for 2025

If you're considering diversifying your retirement savings beyond stocks, bonds and mutual funds, a self-directed IRA could be a compelling alternative to access additional investment opportunities. With greater investment flexibility and the potential for higher returns, SDIRAs are gaining traction among sophisticated investors in 2025.

In this SDIRA guide, we’ll walk you through what you need to know—including what a self-directed IRA is, how it works, pertinent self-directed IRA rules, potential benefits, risks and how to get started with Forge Trust — one of the leading self-directed IRA custodians in the U.S.

What is a self-directed IRA

A self-directed IRA is a type of individual retirement account that gives investors the ability to hold alternative assets — like real estate, shares of private companies, precious metals, cryptocurrencies, and promissory notes — within a tax-advantaged retirement structure.

Unlike traditional IRAs offered through mainstream brokerages that limit you to publicly traded investments, self-directed IRAs offer a broader investment universe. However, they require more involvement from the account holder — and a qualified custodian to administer the account.

[Please note that, while Forge Trust can serve as a qualified custodian, it does not provide investment or tax advice, perform due diligence or evaluate investment opportunities. All investment decisions, related research and due diligence are solely the responsibility of the account holder.]

Why choose a self-directed IRA in 2025?

In today’s volatile market and inflationary environment, traditional retirement portfolios may not offer the same levels of growth or protection they once did. Investors are increasingly looking to:

• Hedge against inflation
• Lower correlation to public market investments to bolster diversification
• Participate in potentially high-growth, emerging private companies that may offer outsized performance
• Take advantage of real estate opportunities
• Step away from traditional Wall Street options and gain more control over investment decisions

Investments in a SDIRA can make these strategies possible — while preserving the tax-advantage

What can you invest in with a self-directed IRA

SDIRAs allow for a wide range of alternative investments. Here are some of the most popular asset classes in 2025:

It is further important to note that investments like life insurance, collectibles (i.e., art or wine) and property for personal use are strictly prohibited under IRS rules.¹

Key self-directed IRA rules for 2025

Before investing in alternative assets through an SDIRA, you need to understand the IRS rules governing retirement investments, including the following:

1. Prohibited transactions

A prohibited transaction can bring into question the tax-deferred status of your self-directed account, potentially resulting in the disqualification of your IRA, and severe tax consequences. The IRS defines a prohibited transaction as follows:

“Generally, a prohibited transaction is any improper use of your IRA account or annuity by you, your beneficiary, or any disqualified person. Disqualified persons include your fiduciary and members of your family (spouse, ancestor, lineal descendant, and any spouse of lineal descendant).”

Prohibited transactions are transactions between SDIRA and Disqualified Persons, which include:

• Yourself
• Your spouse
• Your children or parents
• Businesses you control

For example, you cannot sell a rental property you own to your SDIRA or rent a property owned by your SDIRA to a family member.

The IRS prohibits any transactions that benefit you personally or indirectly. Examples include:

• Living in a property owned by your SDIRA
• Borrowing money from your SDIRA
• Using SDIRA funds to pay personal expenses

Violating these rules can result in the immediate disqualification of your IRA, triggering taxes and penalties. Penalties can include making the full balance of a SDIRA taxable as ordinary income in the year of a violation, plus a 10% early withdrawal penalty if you’re under age 59½.

2. Required minimum distributions

If you have a traditional SDIRA, you must start taking required minimum distributions (RMDs) at age 73 (as of 2025) unless legislation changes. Roth SDIRAs, however, do not require RMDs during your lifetime.

3. Annual contribution limits

The contribution limits for SDIRAs follow standard IRS guidelines. For 2025:

• Under age 50: $7,000
• Age 50 and older: $8,000 (with catch-up contribution)

Potential benefits of a self-directed IRA

There is an array of potential benefits that could be realized when you invest in a SDIRA. The following are several of the most notable ones:

• Diversification: Access to non-traditional assets, such as shares of pre-IPO private companies, can potentially help spread risk in what might otherwise be a traditional portfolio.
• Tax advantages: The opportunity to grow investments tax-deferred (traditional SDIRA) or tax-free (Roth SDIRA).
• Control: Investors have the opportunity to make decisions based on their personal expertise or interests.
• Inflation hedge: Physical/tangible assets like real estate and gold can potentially help preserve wealth over time.
• Opportunity access: Investors have the opportunity to invest in high-growth, pre-IPO unicorns, local properties, or niche markets.

Risks and considerations

While SDIRAs offer many potential benefits, they are not for everyone. Investors should consider these potential drawbacks prior to investing:

• Complex tax rules:

  Investing through a self-directed IRA requires you to follow complex IRS tax rules that do not apply to other IRAs. Failure to follow these rules may result in unintended tax consequences such as extra taxes, financial penalties, or even loss of the account’s tax deferred status. Consult with a tax advisor before investing through an SDIRA to confirm that any potential investment or investment strategy follows these IRS rules. More information about these tax rules can be found here on the IRS website

• Self-management of your account and investments:

  With an SDIRA the account owner has sole responsibility for evaluating and understanding the investments in the account. While regular IRAs limit choices to pre-selected stocks, bonds, and funds offered by the custodian, as an SDIRA owner, you are personally responsible for performing due diligence, selecting, and managing investments held in an SDIRA.

• Increased risk:

  Investing in alternative assets involves unique risks that may be greater than those associated with traditional investments. Alternative assets are not suitable for all clients and are intended for experienced and sophisticated investors who are willing to accept increased risk. Due to a lack of legal and regulatory protection, alternative assets pose an increased risk of fraud when compared to traditional assets. Refer to IRS Bulletin for additional information regarding risks associated with SDIRAs.

• Liquidity issues:

  Alternative assets, such as those outlined above, are not as easily converted to cash when compared to public market investments.

• Valuation challenges:

  Valuations for non-public assets, including private company shares, can sometimes be opaque and hard to posit.

Is a self-directed IRA right for you?

A self-directed IRA isn’t for purely passive investors. It’s designed for people who want greater autonomy over their retirement portfolios, have a decent understanding of specific asset classes and want to align investments with personal interests and objectives.

If you’re looking for flexibility, diversification and potential tax advantages — and you’re willing to take on self-directed responsibility — then an SDIRA could be a powerful tool for your retirement strategy.

How to open a self-directed IRA with Forge Trust

Forge Trust is one of the most experienced and trusted SDIRA custodians, serving over 2.3 million IRA accounts and holding over $16 billion in assets under custody.

Here’s a simple path to get your SDIRA started:

• Sign up for an account
• Select the type of account you want to open.
• Provide your personal information, such as your name, contact information and other important details needed to establish your account.
• Fund the account. Transfers and rollovers are the most common way to fund.
• Prepare your SDIRA to make an investment by submitting applicable paperwork.