Self-directed IRA rules Americans abroad should know

A self-directed IRA (SDIRA) is an individual retirement account that allows you to invest in a wider range of assets than many standard IRAs, including real estate, private businesses, private lending, and certain precious metals.

It is administered by a specialized custodian that processes transactions, while you choose the investments and remain responsible for complying with IRS rules. A self-directed IRA can generally be set up as either a Traditional IRA or a Roth IRA, with the account type determining how it is taxed.

If you’re an American living abroad, this guide explains how a self-directed IRA works, what investments it may hold, and the key IRS rules to understand before opening or contributing to one.

Last updated July 13, 2026

Written by: Darryl Albuquerque

In this article

Can I have a self-directed IRA if I live abroad?

Yes. Americans living abroad can generally have a self-directed IRA if they meet the same eligibility requirements that apply to other IRAs.

A self-directed IRA follows the same contribution and tax rules as a Traditional IRA or Roth IRA. To contribute, you generally need taxable compensation that qualifies under IRS rules.

For 2026, the contribution limit is generally US$7,500, or US$8,600 if you’re age 50 or older, subject to taxable compensation and applicable income limits.

If you claim the Foreign Earned Income Exclusion (FEIE), your ability to contribute may be reduced or eliminated because foreign earned income excluded from US taxable income generally does not count as taxable compensation for IRA contribution purposes.

Some countries may tax IRA income, gains, or distributions differently from the US, and may not recognize the account’s US tax advantages.

What can I invest in with a self-directed IRA?

A self-directed IRA may allow you to invest in alternative assets that are not typically available through many standard brokerage IRA providers.

Before looking at the restrictions, here’s an overview of the assets commonly available through a self-directed IRA.

Common investments in a self-directed IRA

Investment	Generally allowed?	Notes
Real estate	Yes	Must be held for investment purposes, not personal use.
Private businesses	Yes	Must comply with IRS rules and avoid prohibited transactions.
Certain precious metals	Yes	Must meet IRS requirements.
Private lending	Yes	Must follow the prohibited transaction rules.
Certain digital assets	Yes	Availability depends on the custodian, the structure of the investment, and current IRS rules and guidance.

The next section explains which investments and transactions the IRS does not allow and why those rules matter.

What investments and transactions are not allowed in a self-directed IRA?

The IRS prohibits certain investments and transactions in a self-directed IRA. Many prohibited transaction rules involve dealings between the IRA and disqualified persons, which can include you, your spouse, certain family members, fiduciaries, or entities connected to you.

Violating these rules may cause your IRA to lose its tax-advantaged status and could result in taxes and penalties.

The table below highlights some of the most common prohibited investments and transactions.

Common Prohibited Investments and Transactions

Investment or transaction	Generally allowed?	Reason
Artwork, antiques, stamps, and other collectibles	No	Collectibles are generally prohibited by the IRS.
Life insurance	No	IRAs cannot invest in life insurance.
Living in an IRA-owned property	No	Considered personal use of an IRA asset.
Buying property from or selling property to your IRA	No	Generally considered a prohibited transaction.
Lending money between you and your IRA	No	Generally considered a prohibited transaction.
Using IRA-owned property as security for a loan	No	Considered a prohibited transaction under IRS rules.

Before investing in alternative assets, make sure you understand these restrictions. A self-directed IRA gives you more investment choices, but it also requires greater responsibility to follow the IRS rules.

Can I buy real estate with a self-directed IRA?

Yes. A self-directed IRA can generally invest in real estate if the property is held for investment purposes and complies with IRS rules.

Real estate is one of the most common investments held in a self-directed IRA. Depending on your investment goals, the IRA may purchase residential, commercial, or undeveloped property.

However, the property belongs to the IRA, not to you personally. This means you generally cannot:

Live in the property.
Use it as a vacation home.
Rent it to yourself or certain family members.
Pay property expenses with personal funds.
Use the property as security for a personal loan.

Likewise, rental income, sale proceeds, and property expenses generally need to flow through the IRA rather than through you personally.

Can my self-directed IRA own property outside the United States?

Generally, yes. IRS rules do not prohibit a self-directed IRA from investing in foreign real estate. However, investing overseas can involve additional legal, tax, and administrative requirements.

Foreign property may also be subject to local ownership restrictions, tax filing obligations, currency exchange issues, and practical challenges for the IRA custodian.

Is a self-directed IRA the same as a Traditional IRA or Roth IRA?

No. “Self-directed” describes how the IRA is invested, while “Traditional” and “Roth” describe how the account is taxed.

In other words, a self-directed IRA is not a separate tax category. It is usually a Traditional IRA or Roth IRA with broader investment options. To make the distinction easier, compare the features below.

Self-directed IRA vs. Traditional IRA vs. Roth IRA

Feature	Self-Directed IRA	Traditional IRA	Roth IRA
What it describes	Investment options	Tax treatment	Tax treatment
Alternative investments	Usually broader	Usually limited by provider	Usually limited by provider
Tax treatment	Depends on whether it’s Traditional or Roth	Generally tax-deferred	Generally tax-free for qualified withdrawals

What are the advantages and disadvantages of a self-directed IRA?

A self-directed IRA offers more investment flexibility than many standard IRAs, but it also requires you to take greater responsibility for complying with IRS rules and evaluating your investments.

Advantages: A self-directed IRA may be a good option if you want to invest beyond traditional securities. Some potential advantages include:

Access to a wider range of investments, such as real estate and private businesses.
Greater opportunities to diversify your retirement portfolio beyond publicly traded securities.
The same tax benefits available to Traditional and Roth IRAs.
More control over how your retirement savings are invested.

Disadvantages: Greater flexibility also comes with additional responsibilities. Some potential disadvantages include:

More IRS rules to understand and follow.
Greater responsibility for researching and monitoring investments.
Higher custodian or administrative fees than some standard IRAs.
Alternative investments may be less liquid and harder to value.
Higher risk of prohibited transaction mistakes.

Key takeaway: A self-directed IRA offers greater investment flexibility, but it also requires greater responsibility. Understanding the IRS rules before investing can help you avoid costly mistakes.

How do I open a self-directed IRA?

Opening a self-directed IRA is similar to opening a standard IRA. Still, you’ll need to choose a custodian that administers self-directed accounts and supports the types of alternative investments you want to hold.

The process generally involves the following steps:

Step 1: Choose a qualified custodian. Select a custodian or trustee that administers self-directed IRAs and supports the types of investments you’re interested in.

Step 2: Open your account. Decide whether you want a Traditional self-directed IRA or a Roth self-directed IRA, then complete the custodian’s application.

Step 3: Fund the account. You can generally fund the account by making an eligible contribution or by transferring or rolling over money from another retirement account.

If you transfer or roll over funds from another retirement account, make sure the transfer is handled correctly to avoid accidental taxes or penalties.

Step 4: Choose your investments. Once the account is funded, you can direct the custodian to purchase investments that are permitted by the custodian and comply with IRS rules.

Step 5: Manage your account. Review your investments regularly and continue to follow the IRS rules for contributions, distributions, and prohibited transactions.

Frequently Asked Questions

Does a self-directed IRA have different contribution limits than a standard IRA?

No. A self-directed IRA follows the same annual contribution limits as other Traditional and Roth IRAs. For 2026, the general IRA contribution limit is $7,500, or $8,600 if you are age 50 or older, subject to taxable compensation and income limits.

Can I transfer an existing IRA into a self-directed IRA?

Yes. You can generally transfer or roll over funds from an eligible retirement account into a self-directed IRA. The transfer should follow the applicable IRS rules to avoid unnecessary taxes or penalties.

Does the IRS approve investments in a self-directed IRA?

No. The IRS sets the rules for what investments and transactions are generally allowed, but it does not approve individual investments. It is your responsibility to choose investments that comply with IRS requirements.

Can I manage an investment held in my self-directed IRA?

It depends on the investment and your level of involvement. While you direct the investment decisions, you should avoid becoming personally involved in ways that could create a prohibited transaction or provide you with a personal benefit.

Are self-directed IRAs more expensive than standard IRAs?

They can be. Self-directed IRAs often involve custodian, transaction, or asset administration fees that may not apply to many standard brokerage IRAs. Costs vary depending on the custodian and the investments you choose.

What happens if my self-directed IRA makes a prohibited transaction?

A prohibited transaction can have serious tax consequences. In some cases, the IRA may stop qualifying as an IRA as of the first day of the tax year in which the prohibited transaction occurred. The account may then be treated as if it distributed its assets to you, which could trigger income tax and penalties.

Can I have more than one self-directed IRA?

Yes. You can generally own more than one IRA, including more than one self-directed IRA. However, the annual contribution limit applies across all of your IRAs rather than to each account separately.

Can a self-directed IRA own an LLC?

A self-directed IRA may be able to invest through an LLC, but the structure must comply with IRS prohibited transaction rules. You should get professional advice before using an IRA-owned LLC, especially if you live abroad.

Can I buy cryptocurrency with a self-directed IRA?

Some self-directed IRA custodians allow investment in certain digital assets, but availability depends on the custodian and current IRS rules. Digital assets may also create valuation, reporting, custody, and tax issues, especially for Americans living abroad.

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Darryl Albuquerque, an IRS Enrolled Agent, brings 22 years of expat tax expertise in US tax preparation for Americans and Green Card holders living abroad.

Darryl also specializes in streamlined offshore filing and tax advisory services for American citizens, permanent residents, and foreign nationals living abroad.