Self-Directed IRA Myths: Debunked

Many people have never heard of self-directed IRAs, and while they aren’t a secret, there are plenty of myths and misconceptions surrounding them. With so much information readily available across trusted and not so trusted sources, it’s hard to determine what’s true and what’s just noise. We’re here to help set the record straight when it comes to self-directed IRA myths.

Myth #1: Self-Directed investing is only for knowledgeable, experienced investors.

There’s no set knowledge level or entry exam for self-directed investing. Self-direction is open to everyone. However, it is up to you to do all the research and due diligence for self-directed investments. The added responsibility of doing research and due diligence may seem difficult to someone new to investing.  This may be where this myth stems from.

We always recommend partnering with a trusted financial advisor for investment guidance if you’re unsure what’s best for you and your portfolio.

Myth #2: Only rich people or people with large IRAs can self-direct.

Self-directed investing is a great way to help grow smaller IRAs. Some investments, such as private equity, do require you to be an accredited investor which does have income or net worth requirements to qualify. Other investment types such as precious metals, real estate, or private lending may provide an easier point of entry for those with a smaller nest egg to invest.

It is worth noting that most IRA custodians charge fees for transacting and investing.  When considering where to invest and which custodian to work with, you may want to compare fees to ensure the amount you’re investing is worth the fees.

Myth #3:  Self-Directed IRAs are different in the eyes of the IRS.

Self-directed IRAs may have additional benefits compared to their traditional counterparts, but as far as the IRS is concerned regular IRAs and self-directed IRAs are the same.  Both traditional IRAs and self-directed IRAs follow the same set of rules and regulations.  In the eyes of the IRS, self-direction is seen more as something you do with your account, rather than the account itself.

Myth #4: Investing in alternatives is riskier than stock market investing.

There are risks with any investment. When it comes to self-direction vs investing through a stockbroker, the risk lies with whoever assumes liability. Self-Directed investors assume all liability for their investments. Those wishing to self-direct are responsible for doing all of the research and due diligence for their investments.   This additional responsibility could be the reason self-directed alternatives are perceived to be on the risky side.

While investing in stocks, bonds, and mutual funds through a stockbroker feels like the safe option, we’ve seen that investing in the stock market can often feel like a gambling. When it comes to a company’s performance, you truly have very little control over your returns on stocks. It’s more about selection and timing of the investment when it comes to publicly traded assets.
You may find that with alternative investments such as real estate, you have a little more sense of control over your returns. You’re in control of rental rates, property improvements, and tenant selection, each of which can impact your returns.

Myth #5: Self Directed IRAs are complicated to set up.

This may be true with other IRA custodians, but at NDTCO, we strive to make account set up easy! Most accounts at NDTCO can be set up and ready to fund in 10 minutes or less. Some IRAs may require additional paperwork, but most accounts can be set up easily anytime with our online application! Once your account is open, NDTCO will assign a specialist to help guide you through the funding and investment process.


If you’re considering a self-directed IRA but have questions or other self-directed IRA myths to squash, we’d be happy to help!  Providing you with the self-direction knowledge and insight to succeed has always been our top priority. While other companies may push you into their comfort zones, we empower you to stay in yours. Contact us today with questions or visit our Education Center for more information!

Related Articles