Expert: Paul Henneman - 1/31/2006

Question
Maybe I'm missing something, but if I buy an REIT's stock inside of a ROTH IRA shell, won't this protect those high-yield earnings from the tax boogeyman? After all, I'm paying for it with after tax monies.

Or am I wrong?

Answer
Carlos,
   Thank you for your question! The simple answer is, yes. Any investment in the ROTH will not have its returns taxed year in and year out as well, this includes REIT's. So there are several benefits: The investment can grow unhindered by taxes on the profits. You do not have to take distributions at any certain age, this is up to you. In fact, the contributions in a ROTH can continue to grow untaxed until you die, unlike a regular IRA. However, as you note, you are investing with after tax dollars. You cannot deduct contributions like you can with an IRA. But the fact that you do not pay tax on the investments in a ROTH IRA outweighs that by far.
   There are strict limits to how much you can invest in a ROTH, I believe it is about $4,000 a year, that may have been raised recently. It would be worth it to check on the most recent amount. Also, if you make more than approximately $150,000/year you cannot contribute to a ROTH. Those are rarely issues to be concerned about.
   ROTH IRA's are great. Contribute the maximum if at all possible. I hope this helps, please do not hesitate to follow up with me if I can offer anything further,

Sincerely,
Paul Henneman
President
ValuEngine, Inc.
www.ValuEngine.com
www.VEReports.com
www.VEInstitutional.com