With a Self-Directed Traditional IRA, contributions may be tax-deductible, depending on your income and circumstances. Your investments can grow tax-deferred, meaning you generally don’t pay taxes on gains while the money remains in the account. Withdrawals are typically taxed as ordinary income during retirement.

A Self-Directed Roth IRA works differently. Contributions are made with after-tax money, so you generally don’t receive a tax deduction upfront. However, qualified withdrawals in retirement can be tax-free, provided you meet the applicable requirements.

Both account types can potentially hold alternative investments such as real estate, private equity, startups, and precious metals through a qualified custodian. The investment flexibility is similar; the biggest difference is when you pay taxes.