Can I Manage My Own IRA?

Some investors find individual retirement accounts (IRAs) offered by brokers and mutual funds a little restrictive. These accounts often limit investments to stocks, bonds and funds. Moreover, many traditional and Roth IRA mutual funds make investment decisions on your behalf, and few IRAs provide exposure to real estate, precious metals and other unconventional investments.

If you want more control of your IRA, you’ll want to consider a self-directed IRA that gives you broader access to the wide world of investments.

​Read More:​ How to Set Up Your Own Self Directed IRA LLC

The Internal Revenue Service requires that all IRAs be administered by a fiduciary, either a custodian or trustee. The fiduciary must be a bank, mutual fund or other financial institution approved by the IRS.

The fiduciary must ensure that your IRA contributions don’t exceed the annual limits and that distributions from a traditional IRA begin when you reach ​age 72​. Fiduciaries enforce the IRA rules against holding life insurance policies and collectibles, except for certain precious metals.

You can’t be your own IRA custodian, but with a self-directed IRA, you have much greater control over your investments.

A self-directed IRA is administered by one or more IRS-approved custodians of your choosing, but you are in charge of most investment decisions. That means you can invest directly in stocks, bonds and other asset types without the permission of a trustee or custodian. It also means that you are responsible for your investment gains and losses.

You can own mutual funds and exchange-traded funds in a self-directed IRA if you want to share control with an investment manager, but the decision is up to you.

The IRS must approve custodians and also has strict rules prohibiting self-dealing by “disqualified individuals,” which includes you and your relatives.

If you want your self-directed IRA to have maximum flexibility, you may need to open multiple IRAs with different, specialized custodians. That’s because custodians are not obligated to accept all the different assets that you can purchase in an IRA.

For example, precious metals brokers serve as custodians for self-directed IRAs that own approved forms of gold, silver, platinum and palladium bullion. The rules require that the custodian maintain physical custody of the metal.

​Read More​: Tax Rules Regarding Precious Metals in IRA Accounts

You can own, but cannot directly manage, real estate in a self-directed IRA. Real estate custodians require specialized knowledge because they must manage the IRA properties on your behalf. If you attempt to personally run a business within an IRA, you generate unrelated business taxable income (UBTI), which is heavily taxed. However, IRA rental income earned through properties managed by a custodian is not subject to UBTI taxes.

​Read More​: Tax Consequences of a Self-Directed IRA

You may be counting on your IRA to be a significant part of your retirement nest egg. Before deciding to manage your investments, consider how well-suited you are for the task.

Many experts advocate owning a widely diversified portfolio containing many types of assets that you manage for long-term results. Before deciding to manage your IRA yourself, ask yourself if you have the experience, expertise and temperament to make good long-term investment decisions rather than reacting emotionally when the market is volatile.

The U.S. Securities and Exchange Commission warns investors about self-directed IRA fraud. The commission calls out several schemes, including misrepresentations, fraud and lack of disclosure. It urges investors to verify statements made by your custodian.

If you receive an unsolicited phone call from a custodian offering guaranteed results, it might well be a scam. If you have questions, consult with experts you trust such as banks and established brokers. Also, check to see if any information about the custodian is available from the SEC or state securities regulators.