How does a self directed IRA compare to an opportunity investment zone and what is the most common strategy used in combination with either?

@Shawn Long - how does a rural ranch house compare to a downtown studio apartment? You can live in either but they are not really comparable. Same for your question.

SDIRA has strict limitations on how much you can contribute per year, but the funds can come from anywhere. You can invest it in almost anything and anywhere. You cannot be personally involved in any substantial way. 

QOZ funds can only be funded with capital gains from prior investments. So the amount is technically unlimited, but it has to originate from capital gains. You're limited in what you can invest into and where you can invest. You can be personally involved.

As you can see, they are, to some degree, the opposites. You rarely get to choose between the two, and you can use both.

Both strategies have significant tax benefits of tax-deferred or tax-free growth. 

@Shawn Long to invest in an Opportunity Zone, you need a Qualified Opportunity Fund (QOF). These must be setup through a partnership or corporation (usually you'll create an LLC expressly for this purpose).

You'll definitely need a lawyer and a CPA with experience in Opportunity Zones to set this up, so it's not cheap. It's probably only worthwhile setting up a QOF if you intend to use substantial capital gains as part of your investment.

BP has a pretty good article on it here: https://www.biggerpockets.com/...

@Shawn Long

Not sure if you're asking whether to use SDIRA funds to invest in QOZ. Definitely not! 

But in general, you should read up on SDIRA and QOZ. SDIRA's are used as an alternative to a regular IRA to allow to invest your funds outside of Wall Street.

OZ investment is a mechanism used by people that have substantial realized capital gains and are looking for ways to reduce such gains and delay paying taxes on that reduced amount. 

So SDIRA and QOZ are not exactly two things that may be compared. 

Here's some more reading material for you:

https://www.biggerpockets.com/member-blogs/10850/74478-a-little-known-secret-called-self-directed-ira

https://www.biggerpockets.com/member-blogs/10850/76519-dont-put-all-eggs-in-one-basket

https://www.biggerpockets.com/member-blogs/10850/81273-how-to-pay-less-in-taxes