Self-Directed IRA Comparison Calculator

What Is a Self-Directed IRA and Who Should Use One?

A Self-Directed IRA (SDIRA) is an Individual Retirement Account that holds the same tax advantages as a Traditional or Roth IRA — tax-deferred or tax-free growth — but allows a dramatically wider universe of investments. While a standard brokerage IRA limits you to stocks, bonds, mutual funds, and ETFs, a Self-Directed IRA lets you invest retirement dollars in real estate, rental properties, raw land, private equity, promissory notes, tax liens, precious metals, cryptocurrency, and more. Based on IRS rules effective for 2025, contribution limits are the same: $7,000 per year ($8,000 if you are age 50 or older). Last updated: April 2026.

SDIRAs appeal to investors who believe alternative assets can outperform traditional stock market returns over the long term. Real estate investors who want to shelter rental income and appreciation inside a tax-advantaged account, private equity investors seeking exposure to early-stage companies, and high-net-worth individuals wanting portfolio diversification beyond equities all represent the primary SDIRA audience. However, the higher custodian fees, complex IRS compliance requirements, UBIT tax exposure on leveraged assets, and prohibited transaction rules make SDIRAs unsuitable for most casual investors.

SDIRA Allowed vs. Prohibited Investments

The IRS defines what an IRA cannot hold rather than what it can. Prohibited assets include collectibles (artwork, rugs, antiques, stamps, coins other than certain US-minted coins), alcoholic beverages, and life insurance contracts. S-corporation stock is also prohibited because IRAs cannot be S-corp shareholders. Everything else — including real estate, private loans, cryptocurrency, gold bullion, commercial property, solar farms, and crowdfunded equity deals — is generally permitted, provided all transactions comply with prohibited transaction rules under IRC Section 4975.

The single most important compliance rule: you cannot engage in a transaction with a disqualified person. Disqualified persons include yourself, your spouse, your parents, your grandparents, your children, your grandchildren, any fiduciaries of the IRA, and any entity in which you own more than 50%. You cannot sell a property you own to your SDIRA, you cannot live in a rental property owned by your SDIRA, and you cannot personally perform maintenance or improvements on SDIRA-owned real estate. A single prohibited transaction can disqualify the entire IRA, triggering immediate taxation of the full account balance plus a 15% excise tax.

UBIT and UDFI: The Hidden Tax Inside SDIRAs

Unrelated Business Income Tax (UBIT) applies when your IRA earns income from an active trade or business rather than purely passive investment. Most commonly, this is triggered by Unrelated Debt-Financed Income (UDFI) — when your SDIRA purchases real estate using a non-recourse mortgage. If you buy a $300,000 property with a $150,000 non-recourse loan, 50% of the net rental income is classified as debt-financed income and subject to UBIT at trust tax rates, which can reach 37% on income above $15,200. The UBIT liability is paid from inside the IRA, reducing the compounding base available for future growth.

Purchasing real estate all-cash inside an SDIRA completely eliminates UDFI/UBIT exposure. While this reduces purchasing power, it also simplifies compliance, eliminates the annual UBIT tax filing (Form 990-T), and avoids the risk of triggering UBIT on every leveraged deal. Many experienced SDIRA real estate investors choose the all-cash approach specifically to maximize the tax shelter benefit of the IRA structure.

Custodian Fees and the True Cost of a Self-Directed IRA

The custodian fee structure for an SDIRA is far higher than the near-zero fees charged by Fidelity, Vanguard, or Schwab for standard IRAs. A typical SDIRA custodian charges a setup fee of $50–$300, an annual administrative fee of $200–$500, a per-asset fee of $100–$300 per asset per year, and transaction fees of $50–$250 per purchase or sale. For an SDIRA holding two rental properties and a private loan, annual fees of $800–$2,000 are common. Accumulated over 20 years, those fees represent significant compound loss — this calculator quantifies the exact drag on your final balance so you can decide whether higher alternative asset returns justify the cost.

The Checkbook IRA structure — where the SDIRA owns a single-member LLC and you act as manager with direct checkbook control — typically has lower ongoing custodian fees (since the custodian holds only the LLC membership interest) but requires higher upfront legal costs ($1,000–$2,500 for proper LLC formation and operating agreement). The IRS applies heightened scrutiny to Checkbook IRAs, and maintaining proper separation between your personal funds and the LLC is essential to preserve the IRA's tax status.

Self-Directed IRA Prohibited Transactions and the 2026 IRS Disqualification Trap

The single fastest way to lose an entire self-directed IRA is to trigger a prohibited transaction under IRC § 4975 — the IRS instantly disqualifies the IRA on the first day of the tax year, treats it as a fully taxable distribution, and adds a 10% early-withdrawal penalty if you are under 59½. Per the IRS official prohibited-transactions list, the trap most SDIRA real-estate investors hit is "self-dealing": you cannot live in (even one night), vacation in, or do any sweat-equity work on a property your SDIRA owns; you cannot rent it to disqualified persons (yourself, your spouse, parents, children, fiduciaries); and you cannot personally guarantee an SDIRA loan. The 2026 contribution cap is $7,000 ($8,000 if age 50+) for traditional / Roth IRAs — including SDIRAs — but if the IRS deems the IRA distributed in 2026 due to a prohibited transaction, the full account value (often $200K–$2M) becomes taxable income in one year, not just the contribution. Most SDIRA blow-ups happen on real-estate deals where the owner painted the rental themselves or stayed there during renovation. Use a property manager, never personally service the asset, and document every payment from custodian funds only. Updated 2026-06-24.