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Are REITs Good For Roth IRAs In 2024

Are REITs Good for Roth IRAs in %currentyear%

REITs can be a great way to build wealth over the long term. But are REITs good for Roth IRAs? Here’s what you need to know to make the best decision for your own retirement planning.

Are REITs Good for Roth IRAs in 2024?

Real Estate Investment Trusts (REITs) have historically provided higher returns than other investments, such as stocks and bonds.

Regarding Roth IRAs, REITs can be a good addition to diversify your portfolio. But it’s still important to select high-quality REITs that align with your long-term investment goals.

To minimize risk and maximize returns within the constraints of your Roth IRA, be sure to monitor the performance of your REIT investments and adjust accordingly.

Tax Advantages

One of the main benefits of investing in a REIT is the potential for tax-free growth on your investments. 

Are REITs Good for Roth IRAs in 2024

Because at least 90% of a REIT’s taxable income must be distributed to shareholders as dividends, investing in a REIT in your Roth IRA can also lead to significant tax-free dividend income.

Considering these tax advantages, a REIT may be attractive for those looking to build long-term wealth in their retirement accounts.

Is REIT Income Taxable in a Roth IRA Account?

No, REIT income is not taxable in a Roth IRA account. This is because any income and gains earned within a Roth IRA are already tax-free, regardless of the source.

You can make fund withdrawals from your Roth IRA without paying taxes as long as you adhere to the withdrawal rules upon retirement.

To qualify for tax-free withdrawals, you must be at least 59 ½ years old and have contributed to your Roth IRA for more than five years.

Utilizing a Roth IRA can provide greater financial flexibility and security during retirement, making REIT investments within the account even more attractive.

Related: What Is the Average Rate of Return on a Roth IRA?

How to Invest In REITs through an IRA?

To invest in REITs through your IRA, select a REIT fund and decide how much to invest. This process is the same as buying stocks or mutual funds within your IRA account.

Before investing in REITs through an IRA, it is important to research which REITs you want to invest in.

While selecting a fund and deciding how much to invest may seem simple, it is also important not to allocate too much of your portfolio to REITs. As with any investment, diversification is key.

Are REITs Good for Roth IRAs in 2024

When researching potential REIT investments, consider factors such as the company’s financial standing, management team, and past performance.

It can also be helpful to consult financial advisors or experts in the field for their opinion on the best options for your individual situation.

Once you have chosen a REIT to invest in, follow the steps for making an investment through your IRA account.

Remember to regularly monitor the performance of your REIT investment and adjust as needed to maintain a balanced portfolio.

What Is the Best Investment for Roth IRA?

When it comes to deciding the best investment for your Roth IRA, consider both your individual risk tolerance and your long-term financial goals.

A solid foundation for a Roth IRA portfolio combines stock index funds, bond index funds, and Real Estate Investment Trusts (REIT).

  • Stock Index Fund: A type of mutual fund that tracks a specific financial market index, such as the S&P 500. These funds offer diversification and low management fees.
  • Bond Index Fund: A type of mutual fund that tracks a bond market index, such as the Aggregate Bond Index. These funds offer income and stability in a portfolio but tend to generate lower returns.
  • Real Estate Investment Trust (REIT): A company that invests in various types of real estate properties, offering the potential for growth and income in a portfolio without buying or managing an actual property.Are REITs Good for Roth IRAs in 2024

To further diversify your holdings, consider adding a global foreign stock index fund or even an emerging market fund for those with a greater risk appetite. 

As you approach retirement age, shifting to less risky assets such as bonds may be wise.

Seeking professional advice from a financial advisor may also help make informed investment decisions for your Roth IRA.

How Many Stocks Should I Own in Roth IRA?

There is no one “right” answer to how many stocks you should own in a Roth IRA.

It ultimately depends on factors such as your individual risk tolerance, investment goals, market conditions, and diversification strategy.

However, some experts suggest that owning between 20 to 30 stocks can provide a good balance of diversity and profitability.

This allows for a diverse portfolio while also reducing the impact of any potential losses from individual companies and any transaction costs upon owning a stock.

It is generally best to hold the minimum number of stocks required to completely eliminate exposure to market risks because holding additional stocks can result in higher transaction expenses.

Related: Looking To Retire? These 6 Stocks Can Help Generate Regular Income

Why It Might Be Time To Rethink Retirement Investing

Can You Get Your Money Out of a REIT?

Generally, investors can access their funds from a REIT by selling their shares on the open market. However, it is important to note that REITs also regularly pay dividends to shareholders.

This can provide an additional source of income without having to sell shares. It is important to carefully consider both options and make decisions based on individual financial goals and circumstances.

Additionally, it is important to keep in mind any fees or taxes that may apply when selling REIT shares or receiving dividend payments, especially on a taxable brokerage account.

Those who profit from their REIT investments in non-IRA accounts, whether through dividends or capital gains, typically have to pay taxes on their income.

Depending on how long an investment was kept, capital gains are taxed either at the investor’s ordinary income tax rate or at a special capital gains tax rate.

However, you can eliminate that tax penalty if you invest in a Roth IRA because investment growth and payouts from a Roth IRA are tax-free.

Is It Better to Own Real Estate or REIT?

There is no clear answer to this question, as it ultimately depends on an individual’s unique financial situation and investment goals.

On one hand, investing in real estate includes benefits like stable and consistent cash flow, the potential for appreciation, and being a tangible asset. Real estate can also serve as a hedge against inflation.

Owning physical property allows for control over rental income and the ability to utilize leverage to increase return on investment.

Are REITs Good for Roth IRAs in 2024

However, investing in REITs offers the advantage of diversification and often involves less hands-on work.

REITs allow investors to invest in a diversified portfolio of income-producing real estate properties without the burden of directly purchasing and managing individual properties.

They also provide consistent, stable income through regular dividend payments. However, REITs can be subject to fluctuations in the real estate market and may not perform as well during economic downturns.

Overall, it is important for investors to carefully weigh the potential benefits and risks before investing in either REITs or real estate.

How Many REITs Should I Own?

Experts recommend having REITs make up between 5% and 15% of your overall investment portfolio. This helps diversify your holdings while also providing steady income potential through REIT dividends.

While it’s possible to succeed with just one or two REITs in your portfolio, owning a larger number can help mitigate the potential risk of putting all your eggs in one basket.

Plus, having a diverse selection of REITs allows for the possibility of higher returns as different industries and markets may perform differently at any given time.

Benefits of REIT Investing with a Roth IRA

One of the benefits of investing in REITs with a Roth IRA is that any profits from the investment are tax-free. 

This means that your money has the potential to grow even further compared to if it were in a traditional IRA or taxable account.

Additionally, there is no required minimum distribution for a Roth IRA, so you have the flexibility to leave the funds in the account for as long as you would like. This can be beneficial for long-term growth and retirement planning.

Are REITs Good for Roth IRAs in 2024

Another benefit is that REITs tend to provide steady income through dividends, which can supplement your retirement income.

Due to the ease of buying and selling REIT shares, they are also significantly more liquid than holding actual real estate.

Overall, investing in REITs with a Roth IRA can be a great way to diversify your portfolio and potentially increase your retirement account savings.

What Is the Downside of REITs Investing with Roth IRA?

One risk to investing in REITs through a Roth IRA is the risk of interest rate fluctuations. 

When interest rates rise, REITs can struggle because their borrowing costs increase, and it becomes harder for them to turn a profit. This can lead to lower returns for investors.

The potential for choosing a poorly performing or fraudulent REIT is also risky. Research the assets or holdings within the REIT to ensure they are still relevant and can produce rental revenue because trends change.

Because IRA investments are often long-term, a poorly performing REIT can be more detrimental than investing in a non-IRA account where positions can be more easily adjusted.

Lastly, there have been instances of fraudulent REITs in the past, which can result in significant losses for investors. Be vigilant and invest in reputable REITs with a track record of success.

Should You Buy REITs in a Roth IRA?

Yes, owning REITs in a Roth IRA is a smart choice if you are looking for potential for tax-free growth on your investments.

Any fund withdrawals from your REIT assets will also be tax-free if you follow the withdrawal regulations when you retire.

REITs may not appreciate as much in value as stocks or other investment vehicles, but their high dividend yield can provide a steady income for your retirement portfolio.

Additionally, REITs have historically shown strong returns and are often considered one of the best investment options for a Roth IRA.

These factors make investing in REITs within an IRA recommended for long-term growth and retirement savings.

Final Thoughts

Overall, REITs can be a great addition to your investment portfolio – especially if you own them in a tax-advantaged account like a Roth IRA.

This way, you can maximize the benefits of investing in REITs without worrying about paying taxes on your profits. 

REITs are worth considering if you’re looking for a way to boost your return potential in your Roth IRA.


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Jessica is a published author and copywriter specializing in personal and investment finance. Her expertise is in financial product reviews and stock market education.