A self-directed IRA functions differently from a traditional one. Instead of being locked into a particular investment, you get to control everything. Traditional IRAs can only hold certain asset classes, such as equities. If you want to buy real estate with that money, you cannot do it. However, you can switch to a self-directed account and use it to execute the transaction.
To open a self-directed IRA account, you must establish a relationship with a custodian. The IRS stipulates that this custodian must follow reporting rules and register. If you already have a traditional or a Roth IRA, you can roll over the funds. In a rollover, you take funds from the existing account and move them into a new one.
Another way you can fund your account is via annual contributions. You take money from your paycheck and use it to fund the account. If you are under 50, you are limited to $6,000. Once you go above 50, you can contribute an additional $1,000 for a total of $7,000.
On the other hand, if you are working with a 401 (k), the limits are much higher potential. You can invest up to 100% of your income; the maximum is $20,500 yearly. Once you are over 50, you can invest up to $27,000 annually.
The employee deferral for someone under 50 is $14,000 on a Simple IRA. If you are over 50, then you can put away up to $17,000 in one of these accounts. A SEP account is restricted to 25% compensation up to $61,000.