There’s no right or wrong answer. The decision usually depends on a variety of factors and circumstances.
If you are not eligible to take advantage of tax-deductible contributions to a traditional IRA but qualify for after-tax contributions to a Roth IRA, then the Roth IRA is the better choice. Roth IRA contributions are made in after-tax dollars, while earnings are usually not taxable.
If contributions to a traditional IRA are tax deductible and you are also eligible to contribute to a Roth IRA, here are some considerations in making your decision:
- If you expect your retirement tax rate to be equal or higher than it is today, a Roth IRA could yield the greatest benefit.
- If you expect your retirement tax rate to be much lower than it is today, you may want to choose to make contributions to a traditional IRA.
- If you expect your investment to generate strong returns, then a Roth IRA could be a better option.
Finally, if you are younger, the Roth IRA is more attractive because you will have more time to grow your retirement without paying any tax.
Essentially there are three different types of Self-Directed IRAs, each providing the IRA holder with different levels of investment and control options:
- Traditional financial institution Self-Directed IRA
- Custodian-controlled Self-Directed IRA without Checkbook Control
- Self-Directed IRA LLC with Checkbook Control