Creating Retirement Income Streams with a Self-Directed IRA

Self-Directed IRAs offer something uniquely powerful: the ability to invest in what you understand best. Real estate, private equity, precious metals, even tax liens? It’s all on the table. But with that freedom comes responsibility. If you’re not careful, a simple misstep can trigger taxes or even disqualify your entire IRA. The good news? Staying compliant doesn’t have to be overwhelming. With the right mindset and a few key habits, you can enjoy the benefits of a Self-Directed IRA without running afoul of the rules.

Keep Everything at Arm’s Length When Using a Self-Directed IRA

It’s probably the most important rule in the Self-Directed IRA world: don’t engage in transactions with disqualified persons. That includes your spouse, parents, children, and any businesses they own. Your IRA is a separate entity. It can buy a property, but you or your family can’t live in it. It can invest in a company, but not one you control.

Even something small—like performing repairs on a rental held by your IRA—can create problems. Why? Because the IRS sees that as providing a service to the IRA, which is not allowed. It’s considered self-dealing. That’s why many investors work with third-party professionals, even for things they could technically do for themselves.

If you ever feel unsure whether something is allowed, that’s a good sign to stop and ask. A trusted Self-Directed IRA custodian can help you think it through. Ideally, you’ll know these tips as a rule of thumb so you never get yourself in hot water. But even if you don’t, you can work with a Self-Directed IRA administration firm to ensure that everything you do complies with what you can actually accomplish within a Self-Directed IRA.

Follow the Money—and Document Everything

Every transaction in your Self-Directed IRA needs a paper trail. That means funding has to come directly from the IRA account. If you accidentally pay out of your personal bank account and then try to reimburse yourself, that’s a big red flag. It could trigger a prohibited transaction and lead to taxes and penalties.

The same goes for earnings. If you receive rental income from a property held in your IRA, that income has to flow back into the IRA, not to your personal account. Everything needs to go in and out of the right place.

Proper documentation matters, too. When your IRA buys something—whether it’s a property, a tax lien certificate, or private stock—make sure the ownership documents reflect that the IRA, not you, is the owner. That means listing the account name and number, not your personal name.

It might feel like paperwork, but it’s really about protection. It proves the investment is being held the right way and shields your retirement savings from unnecessary risk.

Don’t Walk the Self-Directed IRA Compliance Journey Alone

The world of Self-Directed IRAs is full of potential for the everyday investor, but it’s also full of nuance and occasionally complicated questions. The IRS doesn’t offer a detailed checklist for every scenario. That’s why it’s so important to work with a knowledgeable custodian and stay curious about the rules.

Think of compliance not as a chore, but as a safeguard. It’s what keeps your retirement savings tax-advantaged and on track. And when you stay on top of it, you get to enjoy the full flexibility of a Self-Directed IRA, without the headaches.

If you’re just getting started or want help reviewing how your account is structured, we’d love to help. Call American IRA at 866-7500-IRA and we’ll walk you through it together.

Interested in learning more about Self-Directed IRAs? Download our free guide