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Roth IRA or Traditional IRA: Which Self-Directed IRA is Right For You?

Brad Chastain Director of Education U.S. Money Reserve

Written by Brad Chastain

Dec 1, 2023

Tax season is a great reminder to review your retirement savings strategies and make changes that will enhance your prospects for long-term financial security. It's also a good time to start an Individual Retirement Account (IRA) if you don't already have one.

The question is, what kind of IRA should you open?

What Are Self Directed IRAs?

A self-directed IRA may be a good option for savers who want more control and want to play an active role in managing their portfolios. A key benefit of choosing a self-directed IRA, as opposed to a conventional IRA, is that it typically allows you to choose from a greater variety of assets.

A self-directed IRA can be set up as either a Roth IRA or a traditional IRA. Both types of IRA can hold the same array of non-paper-based alternative assets like real estate, livestock, franchise interests, and IRA-approved precious metals, in addition to traditional assets like stocks, bonds, and mutual funds. For this reason, it may be beneficial to enlist the help of a financial advisor who is familiar with your financial goals and the types of assets you want to hold in the account so they can assist you in deciding on an appropriate level of diversification.

Since you can hold the same diverse array of assets whether you choose a Traditional or Roth Self-Directed IRA, does it matter which one you choose? Yes. The two account types have different eligibility requirements, contribution guidelines, and distribution rules. Understanding these key differences will help you choose the best Self-Directed IRA for your unique financial situation and goals.

Scan the table below for a quick comparison between Roth and traditional IRAs, then read on for more in-depth information.

Roth IRA vs. Traditional IRA

 Roth IRATraditional IRA
TaxesTax-free growth, tax-free qualified withdrawalsTax-deferred growth, tax-deductible contributions
Income EligibilityIncome cannot exceed certain amountIncome does not impact eligibility
Age EligibilityContribute at any ageContribute at any age
Contribution Limits (2023)Contributions not tax-deductible$6,500 (under age 50)

$7,500 (over age 50)

Contributions are tax-deductible$6,500 (under age 50)

$7,500 (over age 50)

WithdrawalsNot required to take distributions during your lifetimeMust take required minimum distribution the year you turn 70.5


Self-Directed IRA vs. Roth IRA

Roth IRAs are special retirement accounts that you fund with post-tax income, so you can’t enjoy the tax benefits that come from being able to deduct your contributions on your income taxes. When it’s time for retirement, though, your withdrawals are tax-free so long as they follow Roth IRA regulations set forth by the IRS. When comparing a conventional Roth IRA to a self-directed IRA (which, as stated above, can be a traditional or Roth IRA), the main differences are the level of control and greater variety of assets available for inclusion in a self-directed IRA. A Roth self-directed IRA makes the most sense if you anticipate that you will become ineligible to make contributions or that your tax rate will be higher during retirement than your current rate.


You can contribute to a self-directed Roth IRA at any age as long as you have taxable income and your total income is below the IRS limit for making Roth IRA contributions. For 2023 contributions, you must earn less than $153,000 if you’re filing singly or as head of the household or less than $228,000 if you’re married filing jointly.

A working spouse can contribute to a non-working spouse’s IRA If the couple files a joint tax return and the working spouse has earned income that equals or exceeds the sum of the non-working spouse’s contribution plus the working spouse’s contribution. You can read more about spousal IRA eligibility on our blog and learn about IRA contribution limits at IRS.gov.


You can contribute to a Roth IRA at any age, even well into retirement. Roth IRAs must be established by the tax filing deadline for the tax year in which your qualifying contributions will apply. Contributions are not tax-deductible.

Tax YearMax. Contribution (under age 50)Max. Contribution (over age 50)Contribution Deadline


Qualified distributions (withdrawals) from a Roth IRA in retirement are tax-free since you already paid taxes on the contributions. Unlike traditional IRAs, there are no required minimum distributions on Roth IRAs during the owner’s lifetime.

In other words, if you don’t need your Roth money, you can leave it in the account and let it grow for future generations to enjoy. However, a Roth IRA is subject to required minimum distribution rules after the death of the account owner. If distributions aren’t made, there’s a 50% penalty. Read up on Roth IRA required minimum distribution rules to avoid possible penalties.

Traditional IRA vs. Self-Directed IRA

Traditional IRAs are tax-deferred retirement savings accounts. The tax advantage is that you pay taxes on your money only when you make withdrawals. A traditional IRA may be best for you if you believe your tax rate will be lower at retirement than it is now.


Who can contribute to a traditional IRA? You (or your spouse) can contribute to a traditional IRA as long as you earn taxable income. Unlike Roth IRAs, there are no income limits for traditional IRAs. Going with a traditional IRA may be an easy choice if your income level makes you ineligible for a Roth IRA.


You can make regular contributions to a traditional IRA just as you would with a Roth IRA. Your traditional IRA contributions may be tax-deductible, depending on whether you (or your spouse) are covered by a retirement plan at work and your income level. (See more on qualifying for IRA deductions from the IRS.)

In general, the same contribution limit applies to both Roth and Traditional IRAs.

Tax YearMax. Contribution (under age 50)Max. Contribution (over age 50)Contribution Deadline


You can take money out of a traditional IRA whenever you want, but you’ll pay regular income taxes on the full amount. And if you are under the age of 59.5 when you make the withdrawal, you’ll pay an additional 10% penalty on top of regular income taxes.

One key difference between a Roth IRA and a traditional IRA is that with a traditional IRA, you must take “required minimum distributions” starting the year you turn 70.5, says CNN Money. The “required minimum distribution” amount depends on how much you have in the account and your life expectancy, according to IRS regulations for IRAs.

Frequently Asked Questions About Self-Directed IRAs

What is the difference between a self-directed IRA and a Roth IRA?

There isn’t a real comparison to make between a self-directed IRA and a Roth IRA, as a self-directed IRA can also be a Roth IRA. That said, conventional Roth IRAs may limit the asset classes available for inclusion, while self-directed IRAs allow a wider selection of assets and asset classes. The account holder of a self-directed IRA also plays a more active role and is the one directing the management of the account. That said, an IRA custodian is still required to establish a self-directed IRA. Discussing asset options with an experienced IRA custodian or financial advisor may make a significant difference in the performance of your portfolio.

What is the difference between a traditional IRA and a self-directed IRA?

As with a comparison between Roth and self-directed IRAs, there is no direct comparison to make between traditional and self-directed IRAs. A self-directed IRA may be a Roth or traditional IRA. The difference between a self-directed Roth IRA and a self-directed traditional IRA is the contribution income eligibility for a Roth IRA and the required minimum distributions for a traditional IRA.

What are the advantages and disadvantages of self-directed IRAs?

A self-directed IRA may make financial sense for some people, but not others. Making that determination may be easier if you weigh the advantages and potential drawbacks of self-directed IRAs.

Potential Advantages of Self-Directed IRAs:

  • Account holder has more control over the assets
  • Wider selection of assets to choose from
  • Improved portfolio diversification

Potential Drawbacks of Self-Directed IRAs:

  • Takes more work on the part of the account holder
  • May require help from an experienced IRA custodian
  • The possibility of greater risk exposure with certain types of alternative assets

What kind of alternative assets are eligible for self-directed IRAs?

A major benefit of self-directed IRAs is the ability to add different types of assets to your portfolio, including alternative asset classes. In addition to conventional asset classes like stocks, bonds, mutual funds, annuities, and ETFs, self-directed IRAs can include:

  • Real estate
  • Land contracts and trusts
  • Precious metals
  • Private equity and stock
  • Startup equity
  • Venture capital
  • Cryptocurrency
  • Foreign currency
  • Promissory notes
  • Limited partnerships
  • LLCs
  • Livestock
  • Franchise interests
  • Equipment Leasing
  • Rights (water, air, mineral, etc.)

What are you not allowed to put in a self-directed IRA?

Despite the huge range of alternative assets that can be part of a self-directed IRA, some assets aren’t allowed. These include life insurance policies, collectibles, and S corporation stocks. Also, anything considered a prohibited transaction for any type of IRA is likewise not allowed for self-directed IRAs. The IRS has outlined what is considered a prohibited transaction so that self-directed IRA account holders are fully aware of the limitations.

What are the steps for opening a self-directed IRA?

The basic steps for opening a self-directed IRA are:

  • Choose an IRA custodian. All IRAs must be established and held by an approved IRA custodian. U.S. Money Reserve’s preferred custodian is Equity Trust Company.
  • Establish a self-directed IRA account with the custodian. This may include paying fees to open the account. If you open a self-directed IRA through U.S. Money Reserve, we’ll walk you through the process and do most of the work for you.
  • Choose the assets you would like to include in the self-directed IRA. It’s often advised to seek professional guidance from a financial expert before selecting assets. If you decide to include precious metals in your IRA, your U.S. Money Reserve IRA Account Executive can help you build a customized portfolio of precious metals tailored to your unique financial situation and goals.
  • Make an initial contribution or fund the self-directed IRA by rolling funds over from an existing retirement account.
  • Actively manage the self-directed IRA to optimize performance by regularly auditing your account and continuing to research alternative asset options

Partner With Your Own Experienced IRA Executive

A self-directed retirement account, whether it is a traditional or Roth IRA, provides you with a wide array of retirement asset options and many chances to diversify. In both cases, you have the ability to manage your account the way you wish and to include the assets you believe in most, like physical gold and silver. A self-directed IRA is an opportunity to build your best financial future how you see fit.

When you’re in control, there’s no limit to how successful you can be. U.S. Money Reserve’s dedicated team of IRA Account Executives are standing by to help you choose the right self-directed IRA for you.

Call 1-844-307-1589 with self-directed IRA questions and to learn more today!


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