Personal finance author and radio host Dave Ramsey cautioned investors about self-directed Individual Retirement Accounts (SDIRAs) as he explained how this retirement savings strategy can be risky.
For investors who like options, the SDIRA gives people the power of choice.
“But hold up,” Ramsey warned. “As niche investments, self-directed IRAs can get complicated fast.”
“They often involve high-risk investments with complicated fees — and you’ll carry the burden of more responsibility for your investment choices, too,” he added.
Unlike conventional traditional or Roth IRAs, a SDIRA offers the same tax advantages while granting one the flexibility to hold alternative assets — such as real estate, private equity, and commodities — that standard brokerages typically prohibit.
“Self-directed IRAs have a lot in common with their close cousins, the regular traditional and Roth IRAs,” Ramsey wrote. “They’re designed to offer the same kinds of tax benefits, whether that’s tax-deferred growth (traditional) or tax-free growth and withdrawals in retirement (Roth).”
Choosing between traditional SDIRAs and Roth SDIRAs
Choosing a Roth versus traditional SDIRA requires weighing illiquid asset payoffs against upfront taxes. A Roth SDIRA is exceptionally powerful for explosive, early-stage private assets: paying taxes on a low initial valuation allows potential massive future gains — like a multi-million-dollar land sale or private stock payout — to be withdrawn entirely tax-free.
Conversely, an illiquid asset held in a traditional SDIRA will eventually trigger hefty mandatory taxes upon retirement distribution, often forcing owners to liquidate hard-to-sell assets just to pay the IRS.
There is another important nuance when choosing between a traditional SDIRA and a Roth SDIRA.
Vetted Prop Firms CPA Dat Ngo points out that people making this decision often focus only on tax implications.
“One thing I always walk clients through is the idea that the Roth vs. traditional decision isn’t just about where you expect tax rates to go — it’s about your income trajectory right now,” Ngo told me. “If you’re in a lower tax bracket today and expect meaningful income growth over the next decade, paying taxes upfront with a Roth contribution is often the smarter long-term move.”
“That said, for someone already in a higher bracket who anticipates a lower income in retirement, the traditional IRA’s deduction can provide real, immediate relief,” he added. “There’s no universal right answer, which is exactly why people should run the numbers for their specific situation rather than defaulting to a rule of thumb.”
Personal finance author and radio host Dave Ramsey cautions investors about self-directed IRA risks while detailing a sensible approach to navigating them.Shutterstock
Dave Ramsey explains how SDIRAs are different
What truly sets a self-directed IRA apart is the freedom it gives you to deploy account funds into non-traditional asset classes.
“Regular IRAs offered by most brokerage firms only allow you to invest in certain types of traditional investments — like stocks, bonds and mutual funds, for example,” Ramsey wrote. “But with a self-directed IRA, you could potentially use retirement funds to invest in real estate, small businesses and cryptocurrencies.”
“Most folks who open a self-directed IRA typically use them for long-term investments that are more difficult to buy and sell than stocks, bonds, or mutual funds (which can be bought with the click of a mouse),” he continued.
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In financial terms, self-directed IRAs are tailored for relatively illiquid assets that cannot be quickly converted to cash on public exchanges.
Beyond illiquidity, SDIRAs carry severe regulatory traps. The IRS strictly prohibits transactions involving “disqualified persons” (such as buying real estate from a spouse or parent), which can instantly disqualify the entire account and trigger back taxes plus penalties.
Additionally, debt-leveraged assets inside an SDIRA can unexpectedly trigger Unrelated Business Income Tax (UBIT), and the Securities and Exchange Commission (SEC) frequently warns that lack of custodian oversight makes these accounts prime targets for fraudulent investment schemes.
During my years of experience reporting on retirement savings, I’ve often covered various ways of investing in IRAs. With SDIRAs in particular, it’s important to know that, by leveraging account capital, investors can branch out into tangible real estate, raw land, and livestock, or pursue alternative commodities like precious metals, oil, gas, and water or mineral rights.
These accounts also provide avenues to back private businesses, hold cryptocurrency, purchase tax lien certificates, and issue debt instruments such as promissory notes.
Ramsey, IRS clarify IRA contribution requirements
Ramsey emphasizes an important point.
“Yes, you can have both a regular and a self-directed IRA at the same time,” he wrote. “There’s actually no limit to the number of individual retirement accounts you can own.”
Regardless of how many individual accounts investors maintain, their combined annual deposits must remain within the overall contribution ceiling mandated by the IRS.
“For 2026, the total contributions you make each year to all of your traditional IRAs and Roth IRAs can’t be more than $7,500 ($8,600 if you’re age 50 or older), or if less, your taxable compensation for the year,” wrote the Internal Revenue Service.
The relevant IRS docs to dive into for further information are IRS Publication 590-A (Contributions to Individual Retirement Arrangements), and IRC Section 4975 (on prohibited transactions).
This article is for informational purposes only and should not be construed as individualized tax or investment advice.
Related: Dave Ramsey has straight answer on whether your 401(k) is enough