The short answer is that there probably are no tax consequences of owning real estate investment trusts (REITs) in a Roth IRA. For a little more color, Roth IRAs are funded with after-tax dollars. This means that you can’t deduct your contributions in the tax year they were made, unlike with a traditional IRA or 401k.

Are REITs good for retirement income?

Real estate investment trusts (REITs) and exchange-traded funds (ETFs) both offer the potential to earn passive income during retirement. There are even REIT ETFs for investors who want the best of both worlds.

Can I put a REIT in an IRA?

Holding your REITs in retirement accounts allows you to reinvest 100% of your dividends, which is essential for maximizing long-term compounding power. If you hold your REITs in a traditional IRA or another tax-deferred retirement account, you won’t have to pay any taxes until you withdraw money from the account.

Can I hold a REIT in my Roth IRA?

A Roth IRA is an ideal place to hold REIT investments, as the IRA allows investors to avoid the large tax obligation that is typically associated with REIT dividends. Given that REITs provide above-average yields, investors who hold REITs in a Roth IRA will accumulate outstanding returns over time.

Do you pay taxes on REIT dividends?

While most REIT dividends are taxable as ordinary income, they also get one very valuable tax break for investors who qualify. Specifically, REIT dividends are generally considered to be pass-through income, similar to money earned by an LLC and passed through to its owners.

Can a IRA be an owner of a REIT?

Real estate investment trusts (“REIT”) are trusts whereby the company undertakes certain real estate activities (e.g. own or lend on real estate) and returns profits to its owners. An IRA may invest and be an owner in a REIT.

How does a real estate investment trust work?

In order to qualify as a REIT, the REIT must distribute at least 90 percent of the sum of its taxable income. To the extent that the REIT retains income, it must pay taxes on such income just like any other corporation.

What are the rules for forming a REIT?

Quarterly, at least 75% of a REIT’s assets must consist of real estate assets such as real property or loans secured by real property. A REIT cannot own, directly or indirectly, more than 10% of the voting securities of any corporation other than another REIT, a taxable REIT subsidiary (TRS) or a qualified REIT subsidiary (QRS).

Are there any real estate investment trusts that pay dividends?

This hospitality REIT is on the smaller size with a market cap of just over half a billion. The trust’s holdings consist of 121 upscale hotels and condominiums with more than 25,000 rooms throughout the U.S. The REIT currently offers a 9.3% dividend yield, which is impressive when compared to an average of ~3% for most Hotel & Resort REITs.