Author Topic: REIT in tIRA or Roth IRA  (Read 1828 times)

SuperSecretName

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REIT in tIRA or Roth IRA
« on: June 23, 2016, 08:59:43 AM »
Given that I am expecting to retire early, and that I am planning on doing the Roth conversion ladder, would it make more sense to put my REIT in tIRA or Roth IRA?

I am going to buy more REIT with new contributions/dividends.  Right now, I am about 50/50 split between the two.

I am having trouble wrapping my head around if there is a difference.

Thanks.

hoodedfalcon

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Re: REIT in tIRA or Roth IRA
« Reply #1 on: June 23, 2016, 09:16:31 AM »
Oh! I have the same question.

pdxvandal

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Re: REIT in tIRA or Roth IRA
« Reply #2 on: June 23, 2016, 09:19:24 AM »
Mine's in a tIRA based on Bogleheads recommendation for tax efficiency.

Vagabond76

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Re: REIT in tIRA or Roth IRA
« Reply #3 on: June 23, 2016, 09:20:40 AM »
A substantial portion of equity REIT income is in the form of return of capital.  If you invest in a tIRA, you convert nontaxable return of capital into income that is taxable at ordinary income rates.  Roth IRA is kind of a wash--all distributions are not taxed.  This is why I only hold equity REITs in taxable accounts.

If you are looking at mREITs, first I would suggest you look away.  If you are intent on owning these, most of the income is ordinary but some may be qualified dividends.  The tIRA vs. Roth IRA is largely equal.  Do not hold these in taxable accounts.

Vagabond76

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Re: REIT in tIRA or Roth IRA
« Reply #4 on: June 23, 2016, 09:25:49 AM »
Mine's in a tIRA based on Bogleheads recommendation for tax efficiency.

SHM when people blindly take a recommendation, regardless of source, and run with it without understanding what is actually happening.

forummm

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Re: REIT in tIRA or Roth IRA
« Reply #5 on: June 23, 2016, 09:28:45 AM »
It doesn't matter whether it's REIT or some other asset. The TIRA/Roth decision is the same. Will your marginal tax rate in retirement be lower than it is today? If so, then TIRA is the way to go if you can deduct the contribution (your AGI is low enough).

A substantial portion of equity REIT income is in the form of return of capital.  If you invest in a tIRA, you convert nontaxable return of capital into income that is taxable at ordinary income rates.  Roth IRA is kind of a wash--all distributions are not taxed.  This is why I only hold equity REITs in taxable accounts.

This doesn't matter. When you pull out the money from a TIRA, you are taxed on the total, regardless of whether it's dividends or appreciation. Those return of capital distributions just lower the price of the stock. It's a wash. If you bought VTSAX and the total return is 10%, then you pay tax on your original contribution plus that 10% when you pull it out--regardless of whether that's 8% appreciation and 2% dividends or -15% appreciation and 25% dividends. Same with an REIT. It doesn't matter.

Vagabond76

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Re: REIT in tIRA or Roth IRA
« Reply #6 on: June 23, 2016, 10:16:32 AM »
It doesn't matter whether it's REIT or some other asset. The TIRA/Roth decision is the same. Will your marginal tax rate in retirement be lower than it is today? If so, then TIRA is the way to go if you can deduct the contribution (your AGI is low enough).

A substantial portion of equity REIT income is in the form of return of capital.  If you invest in a tIRA, you convert nontaxable return of capital into income that is taxable at ordinary income rates.  Roth IRA is kind of a wash--all distributions are not taxed.  This is why I only hold equity REITs in taxable accounts.

This doesn't matter. When you pull out the money from a TIRA, you are taxed on the total, regardless of whether it's dividends or appreciation. Those return of capital distributions just lower the price of the stock. It's a wash. If you bought VTSAX and the total return is 10%, then you pay tax on your original contribution plus that 10% when you pull it out--regardless of whether that's 8% appreciation and 2% dividends or -15% appreciation and 25% dividends. Same with an REIT. It doesn't matter.

Oh but it does matter.  I can buy a REIT in a taxable account, collect and live off of distributions that are a combination of tax-free return of capital and ordinary dividend income, and if I hold it until death never recognize a taxable gain.  Can do the same thing with master limited partnerships, only almost all of those distributions are tax-free return of capital.