Investing in REITs Through an IRA: Simplifying Your Real Estate Investment Strategy

Introduction

If you're interested in investing in Real Estate Investment Trusts (REITs) within your Individual Retirement Account (IRA), you may be wondering about the steps involved in setting one up. However, the reality is that you don't need to set up a REIT; instead, you can invest in existing REITs through a traditional or Roth IRA.

Understanding REITs and IRAs

Real Estate Investment Trusts (REITs) are a type of investment that owns, operates, and finances income-generating real estate. They are unique in that they are required by law to distribute at least 90% of their taxable income to shareholders, which makes them an attractive option for income generation. Meanwhile, IRA (either Traditional or Roth) is a retirement savings tool that allows individuals to save for retirement on a tax-deferred or tax-free basis, depending on the type of IRA.

How to Invest in REITs Through an IRA

The easiest way to invest in REITs using your IRA is to purchase shares of an existing REIT. Most brokerage firms that support IRAs allow you to purchase shares of REITs or REIT index funds, as well as REIT preferred shares. This can be done through a self-directed IRA, which grants you more flexibility in investing directly in real estate or alternative assets, or through a traditional or Roth IRA with investment privileges in REITs.

Simplifying the Process

The process of adding REITs to your IRA is straightforward. The first step is to ensure you have the appropriate investment options available to you. Many brokerage firms that support IRAs offer various types of REITs, including both individual REITs and REIT index funds. If your IRA doesn't currently allow REIT investments, it's a relatively simple process to request an account upgrade or to switch to a brokerage that does offer REITs.

The Benefits of REITs in an IRA

Investing in REITs through your IRA can offer several benefits. Firstly, REITs can provide a diversified and steady source of income, which is ideal for retirees looking to generate a significant portion of their retirement income. REITs also offer the advantage of liquidity and ease of diversification, as you can invest in a single REIT or choose an index fund to spread your risk across multiple REITs.

Conclusion

Investing in REITs through your IRA is a strategic way to diversify your retirement portfolio and potentially enhance your income stream. By choosing to invest in existing REITs rather than setting one up, you can simplify the process and make the most of this tax-efficient investment option.