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Investing for retirement is a crucial financial goal for individuals of all ages. While traditional retirement accounts, such as 401(k)s and individual retirement accounts (IRAs), offer a range of investment options, some investors seek greater control over their retirement funds. In this blog, we will explore the benefits and mechanics of investing using a self-directed retirement account - such as a self-directed IRA.

What is a Self-Directed IRA?

A self-directed IRA is a retirement account that grants individuals the ability to take charge of their investment decisions. Self-directed IRAs provide account holders with more control and a wider range of investment options. With a self-directed IRA, investors can expand their retirement savings beyond the conventional options by venturing into what the financial industry calls “alternative investments”.

Alternative investments can include mortgages, mortgage funds, real estate, private equity, precious metals, tax liens, and much more. This level of flexibility allows self-directed IRA account holders to diversify their retirement portfolio, potentially reducing risk and increasing potential returns.


Self-Directed Custodians

Self-directed retirement account custodians handle the administrative tasks and ensure compliance with Internal Revenue Service (IRS) rules and regulations for self-directed retirement accounts. Investors open a self-directed retirement account with a financial institution that specializes in same. The account custodian ensures adherence to IRS rules, and handles account administration, including documenting transactions, issuing statements, and preparing tax-related documents. Contributions made to a self-directed retirement account generally have tax advantages, depending on the type of account chosen. Assets held in such accounts can generally grow tax-deferred or tax-free, providing potential advantages over taxable investments.


Different Types of Self-Directed Retirement Accounts

Self-directed retirement come in various types, each tailored to specific retirement savings needs. Here are common types of self-directed retirement accounts:

 Traditional IRA

A traditional IRA is an individual retirement account designed to help people save for retirement, with taxes deferred on investment growth. Dividends, interest payments and capital gains compound each year allowing a Traditional IRA to grow faster than a taxable account. Contributions are generally made with after-tax money but may be tax-deductible if you meet income eligibility.

 Roth IRA

A Roth IRA is an individual retirement account to which you contribute after-tax dollars. Funds deposited into the account grow tax-free, and you can withdraw them tax-free and penalty free after age 59 ½ once the account has been opened for five years.



A SEP IRA, or Simplified Employee Pension Individual Retirement Arrangement, is a popular retirement account among self-employed individuals, entrepreneurs, and small business owners. With SEP IRAs, an employer can contribute funds to their employees' retirement accounts, providing a tax-advantaged retirement savings plan. SEP IRAs offer higher contribution limits compared to traditional IRAs, enabling individuals to potentially save and accumulate more retirement funds. Contributions made to a SEP IRA are tax-deductible, reducing taxable income in the contribution year. However, withdrawals in retirement are subject to regular income tax rates.


A SIMPLE IRA, or Savings Incentive Match Plans for Employees, is a retirement savings option that benefits small businesses and their employees. These plans offer an uncomplicated way for employers to help employees save for retirement through salary reductions and employer matching contributions. While contribution limits for SIMPLE IRAs are lower compared to other self-directed IRAs, employers must make contributions on behalf of eligible employees. Both employee and employer contributions to a SIMPLE IRA are tax-deductible, reducing taxable income in the contribution year.


A 401(k) plan is a company-sponsored retirement account in which employees can contribute a percentage of their income. Employers often offer to match at least some of these contributions. There are two basic types of 401(k)s - traditional and Roth - which differ primarily in how they're taxed. Employer contributions can be made to both traditional and Roth 401(k) plans.

Assets You Can Own in a Self-Directed Retirement Account

One of the main advantages of self-directed retirement account is the ability to invest in a wide range of alternative assets. Here are some examples of assets you can own:

  1. Real estate is one of the most popular alternative assets that can be held within a self-directed retirement account. Investors can purchase rental properties, commercial properties, or even vacant land using their self-directed retirement funds. Rental income and property appreciation can contribute to the growth of funds within the self-directed account, potentially boosting retirement savings.
  2. Precious metals, such as gold, silver, platinum, and palladium, can also be owned within a self-directed account. Investors may choose to purchase physical precious metals or invest in precious metal exchange-traded funds (ETFs) through their self-directed IRA account. 
  3. Private equity, tax liens, and other alternative assets can offer potential returns beyond traditional investments. By diversifying your retirement portfolio with alternative assets, self-directed retirement account holders can potentially mitigate risk and create additional income streams for retirement.
  4. Mortgage Funds, Mortgage REITs and Individual Mortgages are another great investment option particularly for relatively passive investors. Investors can invest in all of or a portion of an individual real estate loan and “be the bank”. Investors can also invest in a mortgage fund or mortgage REIT that is a collection of such loans. Organizations like Red Tower Capital originate and service loans that investors can invest in directly. Also, Red Tower Capital manages RTC VI, which is a mortgage fund pending conversion to a mortgage REIT and has an excellent audited track record that investors can invest in.



Benefits of a Self-Directed Retirement Account

Investors are increasingly turning to self-directed retirement due to the potential benefits they offer for retirement savings. Here are some examples of the benefits and advantages.

  1. Increased Potential for Higher Returns: One of the primary reasons investors opt for putting alternative assets in self-directed retirement accounts is the potential for higher returns and returns that are not correlated to more 'traditional’ investments like stocks and bonds.

  2. Increased Diversification: Diversification is a key strategy for managing investment risk, and self-directed retirement accounts offer increased diversification potential. By adding alternative investments like mortgages, mortgage funds, real estate, private equity, and tax liens to their retirement portfolios, account holders can spread their investments across different asset classes, reducing exposure to any single investment. Diversification helps account holders navigate market volatility and potentially enhance portfolio performance over the long term.

  3. Tax Benefits: Investments within a self-directed retirement account generally grow tax-deferred or tax-free, providing potential tax advantages compared to taxable investments.


How to Open a Self-Directed Retirement Account?

  1. To open a self-directed retirement account, first, determine your eligibility requirements. For example, individuals under the age of 70½ who have earned income are generally eligible for self-directed IRAs.

  2. Research reputable financial institutions, trust companies, or banks that offer self-directed retirement accounts. Consider factors such as fees, investment options, account maintenance, and customer service when selecting a provider.

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Who are Some of the Providers?

Different financial institutions and custodians offer self-directed retirement accounts to investors. These providers offer a range of account types and help investors comply with related government rules.

For example, Red Tower Capital and its investors have worked with several popular self-directed retirement account providers. If you're interested in Red Tower Capital’s mortgage fund RTC VI, it turns out that RTC VI is directly available for investment via some of the providers as detailed on the Red Tower Capital website. Other investors have invested in RTC VI via those other self-directed account providers.


In conclusion, a self-directed retirement accounts can be a wise investment choice for those seeking higher returns, returns that aren’t necessarily correlated to "traditional investments", increased diversification, and tax benefits. Opening a self-directed retirement account involves finding the right custodian, choosing suitable products to buy and completing the transaction. If you have any questions or need assistance, don't hesitate to get in touch with our team of experts.