Placing REITs in an IRA

REITS in Retirement Account


The major advantage of REITs (Real Estate Investment Trusts) for investors is the dividend yield that they offer compared to other dividend paying common stock.

REITs provide dividends and growth as well as diversity in retirement account like an IRA or Roth IRA.

The key question today is how will rising interest rates impact REIT performance in the coming months and years.

Some Real Estate Investment Trusts will fare better than others; as the cost of financing climbs the impact will effect mortgage REITs to the negative side.

Because REITs generate above average dividend yields, a great place to invest is in a retirement account like your IRA or Roth. I generally prefer Roths to the traditional IRAs due to the better tax treatment at retirement.

Traditional retirement accounts require you to pay taxes on the full amount you withdraw, in other words distributions are treated as ordinary income at tax time. Roth accounts withdrawals are tax-free as long as you have held them for at least five years and you escape the 10 % penalty if you are older than 59 ½ years of age.

REITs should suffer when interest rates rise due to higher costs and a decrease in attractiveness related to other fixed income investments like bonds.

REITs as a whole are better suited for retirement accounts as the income generated in regular accounts are taxed at ordinary income rates, not dividend rates like common stock.

To avoid the impact of higher interest rates on REITs, select equity REITs vs. mortgage REITs. Mortgage REITs will certainly be impacted by higher borrowing costs.

You might like to consider foreign REITs and global ETFs that hold real estate properties as an alternative to US market REITs.

As always, do some comparison and research before buying any investment.

Financial Quote of the week – If you create incredible value and information for others that can change their lives – and you always stay focused on that service – the financial success will follow.

Brendon Burchard

 

Daniel F. Iuculano, AAMS CMFC

Accredited Asset Management Specialist

Chartered Mutual Fund Counselor

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