My buddy Deepak overheard me talking about investing in real estate with an IRA and was intrigued by the concept. Yes, you really can diversify your retirement portfolio by purchasing rental property, secured or unsecured notes, even a seahorse farm. Your vehicle is a Self-Directed IRA.

Traditional IRAs are limited to stock, bond, and mutual fund investments. Self-Directed IRAs have restrictions, most specifically life insurance, collectibles, and transactions where the IRA owner or immediate family would directly benefit from the investment. Everything else seems to be fair game. Most common are various forms of real estate, notes, and business investments, although the possibilities are vast.

No, it’s not as easy as buying 200 shares of Yahoo. It takes extra management and they’re not for everyone. Make sure you do your research and that your tax advisor understands Self-Directed IRAs (or get one that does). One concept that helped me early on was to learn that the IRA is considered to be an entity separate from myself, like an LLC or Corporation.

Some of the best-known Self-Directed IRA custodians are Pensco, Entrust, and Guidant.

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