This post is for informational purposes only and does not constitute tax, legal, or investment advice. Consult a qualified tax professional or financial advisor before making decisions about retirement account investments.
Most retirement accounts keep capital locked within a narrow universe: publicly traded stocks, bonds, and mutual funds. The IRS, however, does not require retirement funds to stay there.
A self-directed IRA is a legitimate, IRS-recognized retirement account that allows account holders to direct capital into alternative assets, including real estate and private syndications. The structure has existed for decades and operates under the foundational rules of a conventional IRA with the same contribution limits, tax treatment, and distribution requirements. The difference is in what the account can hold and who makes the investment decisions. (IRS Publication 590-A)
Most financial advisors who operate within brokerage platforms don’t discuss SDIRAs because the products they offer don’t include them. Understanding the structure, what it permits, and where the rules get complicated is the starting point for any investor evaluating whether to invest retirement capital in real estate.
Quick Stats
- SDIRA Investor Returns: More than 80% of SDIRA investors surveyed reported returns above 5% in the past 12–24 months (STRATA Trust/Retirement Industry Trust Association, 2025)
- Leading Alternative Asset: Private equity is the top SDIRA allocation category, with 71% of surveyed investors holding it in 2025 (STRATA Trust/Retirement Industry Trust Association, 2025)
- Real Estate: More than 80% of SDIRA investors surveyed reported returns above 5% in the past 12–24 months across alternative asset classes, including real estate. (STRATA Trust/Retirement Industry Trust Association, 2025)
- 2025 Contribution Limit: $7,000/yr; $8,000 age 50+ (IRS Publication 590-A)
- Prohibited Transaction Penalty: Full account taxed in year of violation (IRC Section 4975)
What Is a Self-Directed IRA?
An SDIRA is an individual retirement account administered by a specialized custodian rather than a conventional brokerage firm. The custodian holds and administers the account, processes transactions, and files required IRS reporting. Investment decisions belong entirely to the account holder.
Tax treatment follows the same structure as conventional IRAs. A traditional SDIRA grows tax-deferred, contributions may be deductible depending on income and filing status, and taxes on earnings are paid upon withdrawal. A Roth SDIRA is funded with after-tax dollars, and qualified distributions are tax-free, including any appreciation accumulated inside the account. (IRS Publication 590-B)
The distinction between custodian and non-custodian is worth understanding clearly. Firms like Equity Trust Company specialize in alternative assets and are equipped to hold real estate interests, process syndication paperwork, and administer accounts. Standard brokerage custodians generally do not offer these capabilities.
What Can You Invest in With an SDIRA?
The IRS defines what retirement accounts cannot hold rather than publishing an approved asset list. Under current rules, SDIRAs are prohibited from holding collectibles, life insurance contracts, and stock in S corporations. Beyond those exclusions, a broad range of asset classes is permissible, provided the investment doesn’t trigger prohibited transaction rules. (IRS Publication 590-B)
Assets that can be held inside an SDIRA include:
- Residential and commercial real estate
- Multifamily properties and apartment communities
- Private equity and private placements
- Real estate syndications and limited partnership interests
- Mortgage notes and private lending arrangements
- Precious metals meeting IRS purity standards (IRS Publication 590-B)
Multifamily syndications occupy a specific position within that list. A syndication is a private real estate investment where a sponsor acquires and operates a property while passive investors contribute capital in exchange for an ownership interest and a share of returns. Because the investor contributes capital without personally managing the property, the structure aligns with how SDIRA investments are required to operate — the account holds the asset, and the account holder does not perform services on its behalf.
One rule applies without exception: all investment activity occurs at the account level. The SDIRA owns the investment. Income, expenses, and returns flow through the account, not through the individual personally.
Why Multifamily Syndications Are a Natural Fit for SDIRA Capital
The combination of tax-advantaged retirement savings and income-producing real estate has a straightforward logic. Multifamily syndications, in particular, have been used by SDIRA investors because the passive structure satisfies the hands-off requirement for all SDIRA-held assets.
Inside a traditional SDIRA, distributions from a syndication accumulate tax-deferred. Income received does not create a taxable event in the year of receipt. Instead, it stays inside the retirement account. Inside a Roth SDIRA, provided the account has been open for at least five years and the account holder is 59½ or older at distribution, growth accumulated inside the account is distributed tax-free, including any appreciation on a real estate asset sold above its original purchase price. (IRS Publication 590-B)
The practical implications of that structure depend heavily on individual tax circumstances, holding period, and the structure of a specific deal. A qualified tax advisor can help determine whether an SDIRA is an appropriate vehicle for a given investment.
Markets like Phoenix, Dallas-Fort Worth, and Charlotte have seen sustained multifamily investment activity driven by population growth, employment diversification, and consistent renter demand. Investors who have directed SDIRA capital toward Phoenix multifamily investments, Dallas multifamily investments, or Charlotte multifamily investments have done so in markets where underlying demand fundamentals have remained active.
How to Open an SDIRA for Real Estate
Opening an SDIRA requires working with a custodian that specifically supports alternative investments. The general process follows four steps, though timelines and requirements vary by custodian.
Step 1: Select a qualified SDIRA custodian. Custodians that specialize in alternative assets include Equity Trust Company, Alto IRA, Millennium Trust Company, and Entrust Group. Equity Trust Company is one of the most established custodians in the SDIRA space. We partnered with their team for a live webinar walking through how SDIRA capital can be directed into multifamily syndications, from account setup to funding an investment. Watch the recorded webinar here.
Fee structures, processing timelines, and asset specialization vary between providers and are worth evaluating before opening an account.
Step 2: Fund the account. An SDIRA can be funded through annual contributions subject to IRS limits, a direct rollover from a former employers’ 401(k) or similar plan, or a transfer from an existing IRA. Rollovers and transfers do not count against the annual contribution limit. (IRS Publication 590-A)
Step 3: Identify the investment. A multifamily syndication typically requires reviewing offering documents, completing a subscription agreement, and confirming that the investment structure does not involve a prohibited transaction.
Step 4: Direct the custodian to fund the investment. The investor submits investment direction paperwork to the custodian, who releases funds from the SDIRA directly to the investment. The account is the investor of record in the deal.
All distributions, returns, and eventual sale proceeds flow back to the SDIRA. Personal funds and SDIRA funds must remain completely separate throughout the life of the investment. Commingling personal and SDIRA capital is a prohibited transaction. (IRS Section 4975)
Rules and Risks Worth Understanding
The flexibility of an SDIRA comes with rules that carry real consequences. The points below are intended as an educational overview. A qualified tax professional should be consulted before making any investment decision involving retirement funds.
Prohibited transactions. The IRS prohibits transactions between an SDIRA and disqualified persons, which include the account holder, their spouse, lineal descendants and their spouses, and any entity in which the account holder holds a controlling interest. Purchasing a property from a parent, lending SDIRA funds to yourself, or personally benefiting from an SDIRA-held asset outside the terms of the investment all qualify as prohibited transactions. A single violation can result in the entire account being treated as a taxable distribution in the year the transaction occurred. (IRS Section 4975)
Unrelated Business Taxable Income. When an SDIRA uses debt financing to fund a real estate investment, a portion of the income generated may be subject to Unrelated Business Taxable Income tax, commonly called UBTI. UBTI applies even inside a tax-advantaged account. Syndications that use leverage at the property level may generate UBTI for SDIRA investors, a factor worth reviewing with a tax advisor before committing capital. (IRC Section 512; IRS Publication 598)
Required Minimum Distributions. Traditional SDIRAs require distributions beginning at age 73 under current IRS rules. Real estate held inside a retirement account is illiquid. Account holders approaching retirement age who hold multifamily syndications inside a traditional SDIRA should plan for RMD obligations as part of their broader retirement income strategy. Roth SDIRAs are not subject to RMDs during the account holder’s lifetime under current law. (IRS Publication 590-B)
Custodian selection. Processing delays, limited experience with syndication paperwork, and fee structures that penalize illiquid assets are all factors that vary meaningfully between SDIRA custodians. Vetting a custodian’s experience with real estate and private placements before opening an account is a reasonable first step.
FAQ
Can I use a self-directed IRA to invest in a multifamily syndication?
Under current IRS rules, a self-directed IRA can hold interests in private real estate syndications, provided the investment does not involve a prohibited transaction with a disqualified person. The SDIRA is the investor of record, capital flows through the account, and the account holder directs the investment without personally managing the asset. Individual circumstances vary. Consult a qualified tax professional before proceeding. (IRS Publication 590-B)
What is the difference between a traditional SDIRA and a Roth SDIRA for real estate?
A traditional SDIRA grows tax-deferred, with taxes paid upon withdrawal. A Roth SDIRA is funded with after-tax dollars, and qualified distributions, including appreciation on real estate held inside the account, are tax-free under current IRS rules. The long-term tax implications of each structure depend on individual income, tax bracket, and investment timeline. (IRS Publication 590-B)
What are prohibited transactions in a self-directed IRA?
Prohibited transactions are dealings between an SDIRA and a disqualified person, as defined by the IRS: the account holder, their spouse, lineal family members, and entities under their control. Examples include purchasing property from a family member, personally using a property held by the SDIRA, or lending SDIRA funds to yourself. A prohibited transaction can cause the entire account to be treated as a taxable distribution in the year the violation occurs. (IRS Section 4975)
Do I need a special custodian to hold real estate in an SDIRA?
Standard IRA custodians at brokerage firms typically do not support alternative assets. Holding real estate or private syndications inside an SDIRA requires working with a custodian that specializes in these asset types. Custodian selection affects processing speed, fee structure, and the range of assets the account can hold. It’s one of the more consequential decisions in the setup process and one of the topics we covered in depth in our webinar with Equity Trust Company. Watch the recorded webinar here.
Conclusion
A self-directed IRA is one of the more overlooked structures available to investors who already understand real estate. The tax treatment is IRS-recognized, the rules are well-established, and the passive nature of multifamily syndications has made the asset class a common fit for retirement capital that needs to remain hands-off.
Set up requires more intentionality than opening a standard brokerage account, and the compliance rules carry real consequences when ignored. Anyone evaluating whether to direct retirement funds into real estate should work through the specifics with a qualified tax professional before committing capital.
Investors who have already done that groundwork and are exploring where multifamily demand fundamentals remain active can review investment activity in Phoenix, Dallas-Fort Worth, and Charlotte as a starting point.
About Rise48 Equity:
Rise48 Equity is a Multifamily Investment Group with local offices in Phoenix, AZ, Dallas, TX, and Charlotte, NC. “At Rise48 Equity, we provide opportunities for accredited and non-accredited investors to protect and grow their wealth and achieve passive cash flow. Our team brings expertise to acquire, reposition, and return capital to investors upon reaching our business plan. Through our research and strategically formed partnerships, we acquire commercial multifamily apartment properties, strategically add value to the properties, and create passive income for our investors through cash flow and profits from the sale.”
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