I recently wrote an article about owning closed-end funds in retirement accounts. One reader commented about owning real estate investment trusts, or REITs, in retirement accounts, asking specifically about mortgage REITs. Like closed-end funds, however, owning REITs in IRAs isn't something that can be classified as good or bad -- because the answer is it depends.
Retirement account headaches
Increasingly people's wealth is concentrated in retirement accounts. That can be plans sponsored by an employer, assets rolled from an employer plan to a personal IRA, or retirement accounts you set up yourself. While this trend isn't in and of itself a bad thing, it does create some notable issues.
The first is that you can only invest where you have money. So if all your wealth is concentrated in retirement accounts, that's where your investments will go regardless of whether you like it or not. Moreover, if most of your money is in a plan sponsored by your employer, you'll have to live within that plan's rules whether you like it or not (likely this will mean mutual funds are your primary option).
If you have money in IRAs, traditional or otherwise, you'll have more freedom to do as you see fit. But it's worth taking the time to consider what that means because an IRA is very different from a Roth IRA when it comes to taxes.
REITs and traditional IRAs
With a traditional IRA, you avoid taxation when you put money in the account. You won't have to pay any taxes on the money in the account until you pull money out. So you get the benefit of tax-free compounding. However, any money that comes out of the account gets taxed as regular income. The trade off being no tax up front, but tax at the end.
When you
