Do REITs Belong in a Retirement Portfolio?

Retirees love dividends, but should you put real estate investment trusts in a retirement account?

Dan Caplinger
Dan Caplinger
Jul 12, 2014 at 10:05AM
Investment Planning

Retirees love dividend income, and real estate investment trusts have great yields in today's low-rate environment. But do REITs fit well in an IRA or other retirement account?

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at REITs and whether they belong in retirement accounts. Dan notes that many investors get confused about income investments in IRAs, noting that master limited partnerships like Kinder Morgan Energy Partners (UNKNOWN:KMP.DL) can produce unrelated business taxable income that can threaten the tax-exempt status of your IRA. By contrast, though, Dan notes that REITs generally don't produce that kind of income. Moreover, with REITs like Annaly Capital (NYSE:NLY) and American Capital Agency (NASDAQ:AGNC), sheltering dividend income within an IRA is especially valuable, because those payouts generally don't qualify for lower tax rates on certain dividends. Dan concludes that REITs can definitely be part of a smart retirement portfolio.