(FORTUNE Magazine) – Alaskan sablefish can live more than 90 years and weigh up to 40 pounds. They may also be an excellent investment for your individual retirement account. Rhonda Hubbard made that discovery in 2003 when she moved $92,000 of her IRA funds out of stocks and bonds and into an "individual fishing quota" for sablefish managed by the National Marine Fisheries Service. "I was thinking that we'd like to invest in things that we're familiar with," says Hubbard, who has a degree in business from the University of Washington and is the financial half of a wife-and-husband commercial fishing operation in Seward, Alaska. "The stock market is just a lot of psychology. And when I hear the stories of Enron, I get perturbed."

One thing Rhonda, 43, and her husband, Jim, 49, know better than most are the politics and economics of the Alaskan sablefish fishery. The quota system for Alaska was established in 1995, and since then a thriving secondary market has grown up in which sablefish quotas can be bought, sold, or leased--much like pollution rights or taxi medallions. The lease on Rhonda's IFQ is now returning 10% a year to her IRA, and that doesn't include the 10% price appreciation of the quota itself.

For most folks, contributing to an IRA is an activity akin to flossing or wearing sensible shoes: wise but not particularly sexy. Mutual funds--the safer the better--are generally the preferred vehicle. In fact, most brokerages offer little beyond stocks and bonds.

But prompted by sluggish, scandal-plagued public markets and a boom in real estate, a growing number of investors are discovering ways to get unconventional with their retirement savings. The Employee Retirement Income Security Act (ERISA), which created the IRA in 1974, places surprisingly few restrictions on how retirement money can be invested. Except for life insurance or collectibles--such as artwork or coins--IRA funds can be placed in just about anything. So, yes, you can buy a condo in Miami with your IRA. You can also trade currency, buy a bowling alley, start a company, or invest in a racehorse. All that and, because of the tax-advantaged status of IRAs, no cut for Uncle Sam. At least not right away. But first you have to open what's known as a "self directed" retirement account. These accounts are the province of a scrappy backwater of specialized banks, brokerages, and trust companies that act as legal custodians of the funds.

Tens of thousands of investors have switched their retirement savings to self-directed accounts since the stock market correction of 2000 and 2001. By some estimates, 3% of the $3.5 trillion held in IRAs is now in alternative investments. Meanwhile, many of the firms that act as custodians--companies like Entrust, Fiserv, and Pensco--have become adept at using the Internet to market themselves and the concept of self-directed IRAs nationally. While there is no central repository for data on self-directed IRAs, FORTUNE estimates that assets at the leading custodians are growing almost 30% annually. That's twice the growth rate of the overall IRA market--which itself is experiencing a boom driven by increasing 401(k) rollovers. Flush with clients, the custodians have become expert at structuring self-directed accounts and streamlining the once onerous paperwork. What they don't do is offer investment advice. That's the self-directed part.

It's also the part that makes people like Louis Barajas shake his head. Barajas is the founder of a financial-planning consultancy in Los Angeles and a board member of the Financial Planning Association. "My experience is that it never really works out in the long run," says Barajas. "People want to do it themselves because they have some inside information. It works well for the first nine months, but after that all hell breaks loose. If a client comes in with a lot of money, we'll allow him to maybe put 10% of his portfolio in a self-directed IRA."

Indeed, just because you can customize your IRA doesn't mean you should. Unless you have both time and capital to spare, you should probably avoid putting your nest egg into the likes of sablefish quotas. But investors with a strong do-it-yourself streak--and a particularly compelling alternative investing strategy--may want to consider joining people like the Hubbards who are turning their own kind of insider information into enviable returns.

Consider Terence Faircloth, a CPA and professor emeritus of accounting at Roosevelt University in Illinois. Last fall he set up a self-directed retirement account to invest in the Chicago equivalent of fishing quotas: parking spaces. Like the Hubbards, Faircloth was unhappy with the stock market. Thanks to his experience buying a parking spot for himself, he knew that individual spaces in garages attached to condo developments--many of which can be bought separately from the condos themselves--were a hot commodity. And he reasoned that what looked like a good investment would be even better if he weren't paying tax on the gains. "A tax deferred is a tax saved," says Faircloth. "And the advantage with the parking spaces is that you're not going to get calls in the wee hours that the toilet is backed up." Now his son James is buying parking spaces too.

Faircloth estimates that his rental income represents a 7% to 9% annual return on his $274,000 parking-space-heavy real estate portfolio (he also owns a condo). And again, that doesn't factor in the price appreciation of the property itself. But he isn't betting all his money on parking: Faircloth's self-directed IRA represents less than half of his overall retirement savings, the bulk of which remains in more traditional investments in an account managed by pension giant TIAA-CREF.

Perry Rose's expertise happens to be tire dealerships. Rose, 74, once owned part of more than 90 Firestone dealerships across Texas. In 1987 he and his partners sold out, and Rose rolled the funds from his company's retirement plan into an IRA, which he invested in the stock market. Through the 1990s his account grew to upwards of $6 million, but he was hit hard in the meltdown. "I told my broker to sell me out," he says. "Then I heard about the self- directed IRA." Around the same time Bridgestone/Firestone called, wondering if the retiree would put up the capital to finance a new tire store in Watauga, Texas. Rose agreed and promptly used $1.5 million to purchase the land and finance construction of the dealership. When the giant tire company moved in, it signed a 15-year lease guaranteeing Rose's IRA a 10% return over the first five years, with periodic escalators on the rent thereafter.

All that tax-deferred fun does come with some restrictions. The big no-no in self-directed IRA investing is self-dealing: Except in special cases, an IRA cannot employ its beneficiary or his immediate "lineal" relatives (i.e., parents and children). Nor can the IRA lend to, borrow from, or otherwise transact business exclusively with such "disqualified persons." For instance, while Rose was able to buy the dealership property with his IRA, he could not lease it to himself. More to the point for most, while an IRA can buy a house, the IRA's beneficiary can't rent, buy, or live in it.

The penalty for transgressions is stiff: If the IRS determines that prohibited transactions have taken place, the IRA generally ceases to be an IRA, losing its taxed-deferred status. The full value of the account is then treated as a one-time distribution subject to income tax.

Perhaps the main drawback of IRAs as a vehicle for alternative investments is the restriction on how fast you can put money into them. Private-equity deals often require a significant lump-sum cash outlay upfront. And not everyone has a six-figure nest egg. Nor do people necessarily want to wait 30 years to accumulate enough capital to get started. The good news here is that IRA funds can be pooled, and private-equity players are increasingly aware of the potential of America's vast but fragmented supply of retirement dollars.

One such firm is Pegasus Group of Walnut Creek, Calif. It specializes in buying self-storage facilities and marinas, and often does so with tax-deferred retirement money. Drawing on the resources of roughly 300 private investors, Pegasus makes an average of five to six acquisitions a year, each of which is structured as a limited partnership. For its periodic all-cash acquisitions--the lower-risk sort that Pegasus recommends for retirement accounts--tax-advantaged investors can buy partnership shares starting at $25,000. Bill Schmicker, a Pegasus co-founder, estimates that since the firm began to do such deals in 1989, the partners have averaged well over 10% annual returns.

Given the complexity of the self-directed IRA process, choosing the right plan administrator is critical. So it pays to do your homework. Fee structures vary greatly, and what makes sense for many investors may not be right for you. Look for a custodian with a track record in the kind of investment you plan on making. To ease the accounting and prevent self-dealing, custodians generally require that all transactions made by IRAs be run through their books. The problem with that, however, is that investments with regular expenses--such as rental properties or commodities trading--can quickly generate prohibitive transaction fees. Thus, some custodians return "checkbook control" to their clients by setting up shell companies, typically limited-liability corporations that are owned by the IRA but controlled by the client. To make sure investors don't run into trouble, David Nilssen of self-directed IRA firm Guidant Financial Group suggests that they get an experienced tax attorney to thoroughly vet the procedures they're locking into place before they sign the first check.

The one component of a self-directed IRA that no outsider can guarantee is the soundness of the investment strategy. That can be as terrifying as it is liberating. But in the case of Gene Valentini, 60, a thrill ride was just what he was seeking when he decided to customize his IRA. While convalescing from open-heart surgery in 2004, Valentini watched the Breeders Cup horserace on TV and decided he wanted to bet part of his retirement on the ponies. "I realized that I wasn't taking any risk in my life," he says. So Valentini, head of the Lubbock County Dispute Resolution Center in west Texas, began an intensive study of the racing industry. He has since used a small portion of his IRA funds to acquire shares in 11 horses, three of which are active racers.

Once his thoroughbreds begin to finish in the money, Valentini believes his portfolio will return 25% or more annually. His expectations were only heightened when Giacomo, who has the same sire as one of his horses, won the Kentucky Derby this spring as a 50--1 long shot. "People associate horseracing with risk, and there are risks," he says. "But I'm convinced that I'm going to beat the S&P this year when all is said and done." Just the same, Valentini acknowledges that his "comfort level is still an issue," and he says he's proceeding with caution. After all, if his IRA fails to win the Triple Crown, he may wish to direct what's left of it back into something less racy, like an index fund.

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