Why I hold REITs in my roth IRA.
October 10, 2007 – 8:30 amIf you're new here, I suggest you subscribe to my RSS feed. or bookmark this blog. You'll be able to easily keep up to date with new posts. Thanks for visiting!
IRAs are individual retirement accounts. My preference of choice for socking away retirement dollars right now is a roth IRA. A roth IRA is a type of retirement account where you essentially contribute after tax dollars in return for your investments growing tax-free and being able to withdraw them later on without incurring additional taxes.
Since I’m young and work essentially part-time, my income is taxed at the lowest brackets. Therefore contributing after-tax dollars to a roth IRA makes a lot of sense for me. People with higher incomes may not be eligible for contributions to a roth IRA and in certain circumstances wouldn’t be the right choice for them.
Certain investments are more tax efficient with an tax advantaged account. For example, generally REITs (real estate investment trusts) pay out nice dividends, however these dividends are taxed as ordinary income, not at the 15% reduced dividend tax rate. In my opinion, REITs should be held in your IRA since each dividend payout would normally incur a tax liability. My roth IRA is heavy in REITs right now through Vanguard’s REIT index fund (VNQ) and various other REIT holdings. This allows more income to compound tax-free.
