What’s the Difference Between a Self-Directed Traditional IRA and a Self-Directed Roth IRA?

Sooner or later, it seems like every investor asks it. It’s the classic question: Which is better, a Traditional IRA or a Roth IRA? They sound alike. Both let you hold real assets through a Self-Directed IRA. But the way they handle taxes couldn’t be more different, and that single difference can change how your retirement picture looks years from now.

How a Self-Directed Traditional IRA Works

Think of the Traditional IRA as the classic route. You put money in before taxes. That means you might get a deduction for your contributions now, potentially lowering your taxable income for the year. Inside the account, your investments—whether it’s real estate, private loans, or even precious metals—grow without being taxed along the way.

You don’t pay anything to the IRS until later, when you start taking distributions in retirement. That’s when the taxes catch up. For many people, that timing makes sense. You get the benefit of lowering your current taxes and only pay when you’re no longer working full time.

It also gives your investments time to breathe. Every dollar that stays in the account can compound and compound. As famous investors say, the best thing to do with compounding is to avoid interrupting it unnecessarily. That can make a big difference over decades. That’s why so many long-term planners still lean toward the Traditional IRA, especially when they expect to be in a lower tax bracket down the road.

What Makes the Self-Directed Roth IRA Different

Now take that same idea and flip it around. A Self-Directed Roth IRA starts with money that’s already been taxed. You don’t get a deduction now, but your future self gets a major benefit—tax-free withdrawals in retirement. Every bit of growth, every rent check, every gain from a property sale stays in the account, free from future taxes once the conditions are met.

That’s the beauty of this style of account and how it works. You take care of the tax side up front and never have to think about it again. It can be especially powerful if you believe your investments will grow significantly or if you expect to be in a higher tax bracket later.

There’s another perk too. Roth IRAs don’t come with required minimum distributions during your lifetime. You can let the account grow as long as you want, giving you more control over when and how you use your money.

Which One Fits You Best

There’s no one-size-fits-all answer. A Self-Directed Traditional IRA can be a good fit if you want to trim your taxes today and you think you’ll need lower income in retirement. A Self-Directed Roth IRA might be better if you’re playing the long game and want to keep Uncle Sam out of your retirement picture altogether.

Some investors even choose to have both. They use the Traditional IRA for assets that produce steady income and the Roth for those that could appreciate the most. It’s not about picking sides—it’s about balance and flexibility.

Whatever you choose, the self-directed part is what changes everything. You’re not limited to the same old mutual funds. You can hold real estate, private notes, or other tangible assets that feel closer to home. You’re in control of what your retirement looks like, and that’s what makes it so rewarding.

Interested in learning more about Self-Directed IRAs?  Contact us at 866-7500-IRA (472) for a free consultation or download our free guide.