Why Millennials Want Self-Directed IRAs to Drive Their Retirement Planning
Key Takeaways
Millennials are increasingly turning to self-directed retirement accounts because they want control over their investments rather than relying solely on traditional stock and bond portfolios.
Self-directed IRAs allow you to diversify retirement portfolio holdings with alternative assets like real estate, private lending, and private equity while maintaining the same tax advantages as traditional retirement accounts.
Opening a self-directed IRA typically takes 7-14 days, and you can start by rolling over funds from old 401(k) accounts without moving your entire retirement savings.
Over the last 30+ years, I've watched the investment landscape shift dramatically. Nothing has surprised me quite like the number of millennials walking through my door asking about self-directed retirement accounts.
Ten years ago, most of my clients were Baby Boomers like me: entrepreneurs who'd built successful businesses and wanted control over their retirement investments. Now, I'm sitting down with 35-year-olds asking sophisticated questions about using their IRAs to invest in everything from multifamily rental properties to private equity deals.
Something changed, and millennials, more than any generation before them, are gravitating toward self-direction.
The Financial Realities Shaping Millennial Investors
Millennials learned early that traditional investment strategies don't guarantee security. They came of age during the 2008 financial crisis, watched their parents' 401(k)s lose 30-40% of value seemingly overnight, and experienced pandemic-era market volatility.
They aren't buying the old "set it and forget it" approach their parents followed.
A 32-year-old tech entrepreneur who visited my office last year put it bluntly: "I don't trust the stock market to build my retirement. I trust what I can see and control." That mindset defines the millennial approach to retirement investing.
What Is a Self-Directed Retirement Account?
A self-directed retirement account works exactly like a traditional IRA or 401(k) in terms of tax advantages: tax-deferred growth for traditional accounts, tax-free growth for Roth accounts. The difference is what you can invest in.
Traditional accounts limit you to stocks, bonds, and mutual funds. Self-directed retirement accounts allow you to invest in alternative assets, including real estate, private lending, private equity, venture capital, and partnerships.
The IRS has always permitted these investments in retirement accounts. Most large custodians simply don't offer them because they're more complex to administer.
Is Self-Direction Right for You?
After working with hundreds of millennial investors, I've identified a few common threads. I wouldn't call these requirements, but they are solid indicators that self-directed retirement accounts might align with your investment approach.
You Want Control Over Your Investment Decisions
If you research purchases thoroughly, question recommendations, and prefer making your own decisions, self-direction likely aligns with your personality. Traditional retirement accounts force you to be passive. You select from a menu of mutual funds and hope the managers make good choices. Self-directed accounts let you take the reins.
You Already Understand Alternative Assets
If alternative investments aren't foreign territory and you already have experience evaluating these opportunities, using your retirement funds to access these asset classes with tax advantages becomes a logical next step.
You're Looking to Diversify Your Retirement Portfolio Beyond Traditional Markets
If the stock market drops 30% tomorrow, what percentage of your retirement savings drops with it? If your answer is "most of it" or "all of it," you might benefit from broader diversification across entirely different asset classes.
One software developer I work with explained his strategy: "I have my employer's 401(k) in index funds. That's my stock exposure. My self-directed IRA is in rental properties and private lending. If the market crashes, my real estate keeps generating income."
You Value Tangible Evaluation Over Theoretical Returns
If you'd rather evaluate a specific property's rent roll and neighborhood demographics than trust a fund manager's stock-picking ability, then self-directed investing aligns with your mindset.
The Most Common Millennial SDIRA Investments
Real Estate provides tangible assets, potential appreciation, and steady cash flow.
Private Lending attracts millennials who want passive income without property management. They earn interest on loans secured by real estate or business assets while someone else handles operations.
Private Equity and Venture Capital appeal to millennials working in tech and startup environments who can evaluate opportunities with an advantage over their peers.
Partnerships and LLCs allow millennials to pool resources with friends or business associates to pursue larger investment opportunities they couldn't tackle solo.
What You Need to Know Before Getting Started
Self-directed retirement accounts require attention to regulatory compliance. The IRS has strict rules about prohibited transactions. You can't use your retirement account for personal benefit before retirement age, and you can't transact with certain family members or business partners. Every investment must be arm's length. Violate these rules, and you could disqualify your entire IRA, triggering immediate taxes and penalties.
That's why partnering with an experienced administrator matters. We've processed thousands of transactions over two decades and help clients structure deals correctly from the start.
Opening a self-directed retirement account typically takes 7-14 days. You complete paperwork, fund the account through a transfer or rollover, and you're ready to invest. Many millennials start by rolling over old 401(k) accounts. You don't have to move your entire retirement savings. Test the waters with a portion while keeping the rest in traditional investments.
Making the Move to Self-Direction
Millennials aren't discovering self-directed retirement accounts by accident. They're seeking these accounts because they align with their values: control, transparency, diversification, and the ability to invest based on their own expertise.
Self-directed investing won't work for every millennial. It requires active involvement, ongoing due diligence, and comfort with alternative investments. But for entrepreneurial millennials who want more from their retirement strategy, self-direction offers a powerful tool to build wealth on their own terms.
At Chicago Trust Administration Services, we help investors navigate the regulatory requirements of self-directed investing. We're not here to tell you what to invest in. We're here to ensure your investments are structured correctly and comply with all applicable rules.
To see how we can help, we invite you to schedule a complimentary meeting with us by calling 312-869-9394 or emailing steve@ctasira.com.
Frequently Asked Questions (FAQs)
Q: Can I manage my own rental property that's owned by my self-directed IRA?
A: No. IRS rules require arm's-length relationships for all SDIRA investments. You must hire a third-party property manager and pay them from your IRA account. Even minor tasks like changing a lightbulb yourself would be considered a prohibited transaction that could disqualify your entire IRA.
Q: What happens to my self-directed IRA investments when I reach retirement age?
A: At age 59½, you can take distributions as cash or as "in-kind" distributions where you take ownership of the actual assets. Required Minimum Distributions (RMDs) begin at age 73. If your IRA holds illiquid assets like real estate, plan ahead to ensure you have enough cash to meet RMD requirements.
Q: How much does it cost to maintain a self-directed IRA compared to a traditional IRA?
A: Self-directed IRA custodians typically charge annual fees of $300-$500 plus transaction fees of $50-$300 per investment. Traditional IRA custodians often charge little to no annual fees because they earn revenue from the securities you hold. The additional cost reflects the specialized compliance work required for alternative investments.
*The content and opinions in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
**CTAS professionals are not financial advisors and cannot provide advice or recommendations regarding specific investment decisions.