How to Invest With Your Self-Directed IRA

January 15, 202210 min read
How to Invest With Your Self-Directed IRA
Share on facebookShare on TwitterShare on Linkedin

A Self-Directed IRA (SDIRA) is a tax-advantaged account that allows you to save for retirement. This type of account gives you more flexibility by expanding your IRA investment options to include certain alternative investments, like real estate or litigation financing. It also gives you more control over your investments by allowing you to manage them yourself. With a Self-Directed IRA, your investment options are not limited to stocks, bonds, mutual funds, and similar asset classes that you’re usually restricted to with traditional IRAs and Roth IRAs

While Self-Directed IRAs do offer these unique investment options, some industries are more favorable than others. With a plethora of investment options out there, finding the most suitable asset classes, industry exposures, and risk profile for you takes a little research. To get you started, we’ve outlined the primary benefits of a Self-Directed IRA and a sample of investment options available, that include investing in real estate, commercial finance, and litigation finance.

Potential benefits of investing with a Self-Directed IRA

Investing in alternative assets can be beneficial as it enables you to diversify your portfolio with assets from a variety of industries with typically low correlation to the stock market. Along with helping protect your portfolio against an economic downturn, alternative assets can also help protect your gains against inflation, as paper assets (such as bonds and equities) are most vulnerable to inflation. Making a direct investment into something that will produce income or provide an opportunity for a gain in value can remove middle-men and reduce fees.  

A Self-Directed IRA can be helpful in maximizing your tax-efficient investment strategy.  Investments that spin off interest and short-term capital gains are giving you taxable income that is taxed at your marginal tax rate, up to 37%. These investments are best held in your retirement accounts. Investments that give you returns in the form of long-term capital gains are taxed at, oftentimes, a lower rate of 0%, 15% or 20%. These advantages, in addition to the tax benefits that come with holding an IRA, make Self-Directed IRAs an appealing option for many investors, regardless of experience level. 

Self-Directed IRA investment options

Depending on your retirement goals, the following industries could be viable options for your Self-Directed IRA.

Real estate IRA investment options

One of the most popular IRA investment options, real estate, is a familiar asset for current property owners. It is already associated with building equity and has been seen as a stable investment for generations. That said, investing in property with a Self-Directed IRA is systematically different from investing in a home for personal use. The IRS has strict rules surrounding the investing process and purchasing real estate with your IRA incorrectly can be costly.

IRA investment in real estate

Rules for investing in real estate

  • No self-dealing: You cannot buy or sell the property to or from a related party.
  • No DIY improvements: Lifting a hammer or even a screwdriver to the property is prohibited. The IRS insists that all repairs and maintenance be done through an unrelated third party.
  • No personal use: You cannot live in or on the property.

Real estate: what you can invest in

Now that we’ve covered the nitty-gritty of what you can’t do, we can get to the interesting topics: what you can invest in. The good news is you have options. You can invest your Self-Directed IRA in the following:

  • Residential real estate: Single and multi-family homes, condos, and mobile homes
  • Commercial real estate: Office buildings, salons, gas stations, shops, or other businesses
  • Vacant land: Undeveloped lots
  • Trust deeds: Agreements between borrowers and lenders that property will be held by a neutral third party serving as a trustee
  • Mortgage notes: Documents signed at closing detailing the cost of the mortgage and its payment timeline

Real estate investment risks

While investing in real estate is a popular option, it does come with risks, so be sure to do your homework before jumping into a purchase. Thoroughly researching the geographic area you’re looking to buy in, for instance, can be crucial to getting the most out of your investment. When researching the market, remember to look into the demographics, income, and local economy of the area. 

Also, take note of the economic patterns commonly associated with that region. Urban areas, for example, tend to be more resilient to the effects of economic downturn and often recover more quickly. Being mindful of the impact of prior economic hits on your potential investment will help you make wiser investment decisions.

Funding real estate investments

When it comes time to fund your real estate investment, there are a few ways to go about it. You can make a direct purchase, combine personal funds with existing IRA funds or make a leveraged purchase. You could also invest in a real estate investment trust (REIT). Generally, these are entities that own and/or operate income-producing real estate in sectors such as retail and healthcare. 

Investing in real estate through a Self-Directed IRA opens up a world of opportunities, but it’s essential to navigate the rules and risks wisely. From residential properties to commercial spaces, the options are vast, and the potential rewards are enticing.

Keep in mind that deploying leverage with your IRA could make some of the gains and income taxable. The method you choose to fund your investment with is up to you, so be sure to do your due diligence and definitely consider speaking with a financial advisor before committing to one strategy or another.

Yieldstreet IRA

Strengthen your future with a private market IRA.

Commercial finance IRA investment options

Another Self-Directed IRA investment option is commercial finance or businesses. You can make an equity investment in a business from your Self-Directed IRA by either purchasing an existing company or starting your own.  

Commercial financing

Potential benefits of investing in commercial finance

If you’re already planning to start a business, using funds from your SDIRA to support its growth – while also serving as an alternative long-term retirement plan – can benefit your business now and your retirement plan down the line. Even if you aren’t one to start a business, you can invest a portion of your Self-Directed IRA funds into an existing business.

Risks of investing in commercial finance

Outside of the inherent risks of investing in a business, the IRS has strict rules about where you can invest, how much, and who benefits from it. Breaking these rules can be costly, so be sure to familiarize yourself with the following prior to investing in any business.

  • Investing in an S corporation is prohibited. The tax definitions behind S corporations fall under “prohibited transactions.”
  • Avoid disqualified parties. Your parents, children, and spouse are all considered “disqualified parties” and they are unable to invest in your business with a Self-Directed IRA or to benefit from your account. 
  • Avoid self-dealing. As with other SDIRA investments, you cannot benefit directly from your investments before retirement. To avoid this, you must own less than 50 percent of the business and you must have a boss–you cannot be the primary employee.

(Please consult your CPA or other tax professional for guidance regarding your specific situation as Yieldstreet does not provide tax advice.)

Litigation finance IRA investment options

Litigation finance comes in many forms, including pre-settlement funding where an investor can advance funds to plaintiffs and defendants as their case plays out. If you’re considering investing in litigation finance, both law firms and their clients can benefit from this investment option by reducing litigation risk, managing budgets, and maintaining corporate balance sheets.

Litigation Finance

This kind of investment can also benefit you by helping to diversify your portfolio, as it typically has a low correlation to the stock market. So, if you have already invested in real estate, for instance, your litigation investments are unlikely to fluctuate in tandem with them. 

Litigation finance: what you can invest in

As we mentioned briefly, litigation finance opens the doors to a variety of Self-Directed IRA investment options. Here are some of the ways you can start saving for retirement by investing in litigation finance:

  • Pre-settlement funding: Provide a “cash advance” to plaintiffs against the anticipated settlement of a personal injury suit on a non-recourse basis.
  • Law firm financing: Help attorneys who offer contingency fee representation manage their cash flow during long-term cases. 
  • Buyout of law firms: Make leveraged-buyout loans to law firms looking to acquire another firm.
  • Legal advertising Help finance large advertising campaigns for law firms.
  • Post-settlement financing: Providing up-front financial assistance to plaintiffs awaiting settlement funds.

Risks of investing in litigation finance

Though the payoff may be worth it, like all forms of investing, using your Self-Directed IRA to invest in this option isn’t entirely risk-free. Pre-settlement funding, for example, can be especially risky as plaintiffs can quickly run low on funds, leaving them unable to repay their legal fees with interest. To protect yourself and your investments, it is important to do your due diligence and consider working with a third party before investing in any aspect of litigation.

Steps to investing with your Self-Directed IRA

The steps for investing in each of these alternative IRA investment options differ slightly from industry to industry. That said, there are preliminary steps that apply to each option regardless of asset class.

Happy young female investor

1. Decide on the asset class you want to invest in

It is wise to be well-versed in both the asset class and the industry you invest in, so give yourself time to do ample research. At the same time, remember to keep your current investments in mind to determine how your SDIRA will support your existing portfolio. You may also want to consider who will manage your investment at this time. If so, be sure to look out for third parties who specialize in alternative assets. 

 2. Determine how you want to fund your IRA

Before opening your Self-Directed IRA, it’s important to know where you’ll pull your investment funds from. If you already hold an IRA, you may choose to transfer or rollover funds from an existing account. The IRS has strict rules around timing and frequency of rollovers, so be sure to understand these regulations fully before making any moves. 

If you don’t already hold an IRA, you may choose to form an LLC to protect your assets.

3. Locate and hire a custodian

Your custodian is a neutral third party who holds your investments and helps ensure that you meet government and IRS regulations. They cannot provide financial advice or manage your investments, but you should still take the time to identify and hire a reputable custodian. When shopping around, consider their experience, portfolios, reputational information (for example, see the Better Business Bureau), and ensure their fees are competitive.

4. Open your Self-Directed IRA 

Once you find a custodian you trust, you can work with them to transfer funds from your other retirement accounts and start investing. You may also want to hire a financial advisor at this time to help ensure you’re making the best decisions for your retirement goals. 

What to consider when weighing your IRA investment options

Investment risks by industry

Many of these alternative investments are illiquid, making them challenging to turn into cash if needed. For this reason, it’s beneficial to be well-versed in the industry you plan to invest in prior to investing any funds. Even experienced investors can have trouble navigating a new asset class, so consider working with a third party who has expertise in your potential investment area.

Prohibited transactions

In general, prohibited transactions involve “disqualified persons,” the account holder, or your beneficiary improperly using funds from your Self-Directed IRA. These disqualified persons include spouses, lineal ascendants, and lineal descendants, meaning family members including your parents or children and their spouses. The IRS places limitations on the way these individuals can interact with and benefit from your Self-Directed IRA. Some prohibited transactions include using your SDIRA to secure a loan or to purchase a home for personal use.

Prohibited investments

Breaking IRS rules around your IRA investment options eliminates the tax benefits of your retirement fund and can lead to additional fees and/or penalties. The details surrounding prohibited investments vary between different industries and specific assets. To give you an idea of what the IRS prohibits, the following are examples of prohibited investments:

  • Antiques: Artwork, antiques, and collectables cannot be held by IRA accounts. This includes baseball cards, stamps, furniture, and jewelry. You can lend money to people who buy these things though or invest in a company that is in the business of collectibles.  
  • Coins: Most gold coins are prohibited from IRA accounts. The few permitted coins have a high mineral content and are not seen as collector coins.
  • Life Insurance: In general, you cannot use the funds in your SDIRA to purchase a life insurance policy. 

With so many IRA investment options available, taking the benefits and risks of each one into account is crucial to get the most out of your retirement plan. Use this guide to narrow in on the best opportunity for your retirement goals and start exploring your options.

Interested in investing with a Self-Directed IRA? We can help. The Yieldstreet platform allows accredited investors to help diversify their retirement portfolio by investing in alternative assets with their SDIRA. Don’t have a Self-Directed IRA set up? We can help with that too

Still have additional questions or want to learn more about your investment opportunities? Reach out to us at [email protected].

This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness or any other aspect of such website (or article contained therein). 

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest," "Annualized Return" or "Target Returns" represents a projected annual target rate of interest or annualized target return, and not returns or interest actually obtained by fund investors. “Term" represents the estimated term of the investment; the term of the fund is generally at the discretion of the fund’s manager, and may exceed the estimated term by a significant amount of time. Unless otherwise specified on the fund's offering page, target interest or returns are based on an analysis performed by Yieldstreet of the potential inflows and outflows related to the transactions in which the strategy or fund has engaged and/or is anticipated to engage in over the estimated term of the fund. There is no guarantee that targeted interest or returns will be realized or achieved or that an investment will be successful. Actual performance may deviate from these expectations materially, including due to market or economic factors, portfolio management decisions, modelling error, or other reasons.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments, excluding our Short Term Notes program, weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including July 18th, 2022, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Alternative Income Fund before investing. The prospectus for the Yieldstreet Alternative Income Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

9 Statistics as of the most recent month end.

300 Park Avenue 15th Floor, New York, NY 10022


No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice, except for specific investment advice that may be provided by YieldStreet Management, LLC pursuant to a written advisory agreement between such entity and the recipient. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefore.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and are willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

YieldStreet Inc. is the direct owner of Yieldstreet Management, LLC, which is an SEC-registered investment adviser that manages the Yieldstreet funds and provides investment advice to the Yieldstreet funds, and in certain cases, to retail investors. RealCadre LLC is also indirectly owned by Yieldstreet Inc. RealCadre LLC is a broker-dealer registered with the Securities and Exchange Commission (“SEC”) and a member of the Financial Industry Regulatory Authority (“FINRA”) and the Securities Investor Protection Corporation (“SIPC”). Information on all FINRA registered broker-dealers can be found on FINRA’s BrokerCheck. Despite its affiliation with Yieldstreet Management, LLC, RealCadre LLC has no role in the investment advisory services received by YieldStreet clients or the management or distribution of the Yieldstreet funds or other securities offered on our through Yieldstreet and its personnel. RealCadre LLC does not solicit, sell, recommend, or place interests in the Yieldstreet funds.

Yieldstreet is not a bank. Certain services are offered through Plaid, and Footprint and none of such entities is affiliated with Yieldstreet. By using the services offered by any of these entities you acknowledge and accept their respective disclosures and agreements, as applicable.

Investment advisory services are only provided to clients of YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission, pursuant to a written advisory agreement.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure