Investing in REITs With a Self-Directed IRA

Yes — you can hold REITs in an IRA, and doing so is often tax-smart. For publicly traded REITs, REIT mutual funds, and REIT ETFs, a standard brokerage IRA at any major brokerage works fine; you hold them just like any other listed security, with no special account needed. The main reason to hold REITs in an IRA is the tax treatment: most REIT dividends are taxed as ordinary income in a taxable account (because the REIT pays little corporate tax), which makes REITs relatively tax-inefficient. An IRA shelters those dividends from current tax — they compound tax-deferred in a traditional IRA, or grow tax-free in a Roth IRA — which can meaningfully improve after-tax returns over time. If you want to hold non-traded or private REITs in an IRA, you'll generally need a self-directed IRA with an alternative-asset custodian, since a standard brokerage can't custody those. So yes, REITs fit well in an IRA; the account type you need depends on whether the REIT is traded or non-traded. This is educational information, not tax advice.

The main reason is tax efficiency. Because REITs pay little or no corporate tax (they distribute most of their income under the 90% rule), most REIT dividends are 'non-qualified' and taxed at your ordinary income rate in a taxable account — not the lower qualified-dividend rate that applies to many stock dividends. For high earners, that means REIT income can be taxed at a much higher rate than long-term capital gains, making REITs relatively tax-inefficient to hold in a taxable account. An IRA fixes this by sheltering the income: in a traditional IRA, REIT dividends aren't taxed as received but compound tax-deferred until retirement; in a Roth IRA, qualified withdrawals are entirely tax-free. Either way, you remove the annual drag of ordinary-income taxation on the dividends, improving after-tax compounding. This is part of a broader 'asset location' strategy of placing tax-inefficient, ordinary-income assets in tax-advantaged accounts. So holding REITs in an IRA rather than a taxable account can meaningfully boost after-tax returns — though the 199A deduction nuance is worth weighing. This is educational, not tax advice.

Not for most REITs. If you want to hold publicly traded REITs, REIT mutual funds, or REIT ETFs, a standard brokerage IRA already does the job — these are listed securities that any major brokerage IRA can hold, with no special structure required. This covers the large majority of REIT investing. You only need a self-directed IRA (SDIRA) when you want to hold non-traded or private REITs that aren't listed on an exchange and that a standard brokerage can't custody. An SDIRA uses a custodian that specializes in alternative assets — private real estate, non-traded REITs, private placements — and can hold those interests inside the tax-advantaged wrapper. So the rule of thumb is simple: traded REITs fit a regular brokerage IRA, while non-traded or private REITs require a self-directed IRA. Don't over-complicate it — if you're investing in listed REITs, you almost certainly don't need a self-directed structure. The SDIRA matters only when the REIT itself is unlisted and requires an alternative-asset custodian.

A self-directed IRA (SDIRA) is an individual retirement account that lets you hold a broader range of investments than a standard brokerage IRA — including alternative assets like private real estate, non-traded and private REITs, private placements, and more. The key difference is the custodian: an SDIRA uses a specialized custodian that can hold and administer non-traditional assets, whereas a standard brokerage IRA generally holds only listed securities like stocks, bonds, funds, and ETFs. The 'self-directed' label means you direct the investment choices into these alternative assets (within the rules), rather than being limited to a brokerage's menu. SDIRAs follow the same core IRA rules — contribution limits, distribution rules, traditional-versus-Roth tax treatment — but add responsibilities, such as avoiding prohibited transactions and disqualified persons, and they typically charge custodial fees for holding alternative assets. So a self-directed IRA is the vehicle you'd use to hold a non-traded or private REIT in a retirement account. It's not necessary for publicly traded REITs, which a regular brokerage IRA already handles. Confirm the rules with the custodian and your tax advisor.

Not as they're received. One of the main benefits of holding REITs in an IRA is that the dividends aren't taxed when paid — they accumulate inside the tax-advantaged account. In a traditional IRA, REIT dividends compound tax-deferred; you pay ordinary income tax only when you take distributions in retirement. In a Roth IRA, qualified withdrawals are entirely tax-free, so the REIT dividends are never taxed if the Roth rules are met. This is exactly why an IRA is such an attractive home for REITs: in a taxable account, most REIT dividends are taxed annually at ordinary income rates, creating a yearly tax drag, whereas the IRA removes that drag and lets the income compound. The trade-off is that you can't use the 20% Section 199A deduction inside an IRA (it applies only in taxable accounts), but for high earners, sheltering the full ordinary dividend usually outweighs that lost deduction. So REIT dividends grow untaxed inside an IRA, taxed only on traditional-IRA withdrawal or never in a qualified Roth. This is educational information, not tax advice.

UBIT — unrelated business income tax — is a tax that can apply even inside a tax-exempt account like an IRA when the account earns certain 'unrelated business taxable income' (UBTI). The good news for REIT investors is that ordinary REIT dividends are generally treated as portfolio income, which is excluded from UBTI. So owning publicly traded REIT shares in an IRA typically does not generate UBIT — the dividends flow into the IRA without triggering the tax, which makes REITs a clean fit for retirement accounts. UBIT, and the related unrelated debt-financed income (UDFI) tax, tend to arise in narrower situations — for instance, when an IRA directly owns and operates a business or holds debt-financed real estate through a structure that produces UBTI, rather than simply owning REIT shares. Because the REIT itself owns and operates the real estate (and pays portfolio-type dividends), an IRA owning REIT shares is generally insulated from these issues. The rules are technical and structure-specific, though, so confirm the treatment of any particular investment with your tax advisor. This is educational, not tax advice.

Generally no. Publicly traded REIT shares held in an IRA typically do not create unrelated business income tax (UBIT), because ordinary REIT dividends are treated as portfolio income, which is excluded from unrelated business taxable income (UBTI). When your IRA owns shares of a traded REIT and receives dividends, those dividends are the kind of passive, portfolio-type income that the UBTI rules exclude — so they don't trigger UBIT. This is one reason REITs are considered a clean, straightforward holding for retirement accounts: the REIT itself owns and operates the underlying real estate and handles any operating or debt-related complexity at the entity level, so the IRA shareholder generally just receives portfolio dividends. UBIT and the related unrelated debt-financed income (UDFI) tax are narrower concerns that tend to arise with directly owned operating businesses or certain debt-financed structures — not plain ownership of traded REIT shares. That said, the rules are technical, and unusual structures can differ, so it's wise to confirm with your tax advisor. But for typical traded-REIT-in-an-IRA investing, UBIT is generally not an issue.

To hold a non-traded or private REIT in a retirement account, you generally set up a self-directed IRA (SDIRA) with a custodian that handles alternative assets. The steps usually go like this: first, choose a qualified self-directed IRA custodian — a firm that specializes in holding non-traditional assets like private real estate, non-traded REITs, and private placements. Second, open and fund the SDIRA, typically by transferring or rolling over funds from an existing IRA or eligible retirement account; done as a direct transfer or proper rollover, this is generally a non-taxable event. Third, have the SDIRA — not you personally — make the investment, with the custodian holding the non-traded REIT interest in the account's name. Along the way, you must follow SDIRA rules: avoid prohibited transactions and disqualified persons, observe contribution and distribution rules, and be aware of custodial fees. The SDIRA doesn't change the REIT itself — it remains illiquid, NAV-priced, and suitability-gated — it just provides a tax-advantaged wrapper. Coordinate the process with the custodian and your tax advisor, since the rules are technical. This is educational, not tax advice.

No — the 20% Section 199A deduction on qualified REIT dividends can't be used inside an IRA. The 199A deduction applies only in taxable accounts: it reduces the taxable amount of qualified REIT dividends you receive in a regular account, lowering the effective top federal rate on those dividends to roughly 29.6% (the deduction was made permanent by the 2025 OBBBA legislation). Inside an IRA, however, the dividends aren't currently taxed at all — so there's nothing to apply the deduction against, and the 199A benefit simply doesn't come into play. This means holding REITs in an IRA involves forgoing the 20% deduction you'd get on those same dividends in a taxable account. Does that make a taxable account better? Usually not for high earners: the IRA still shelters the full ordinary dividend from current tax and lets it compound tax-deferred or tax-free, which typically outweighs the lost deduction. But the math depends on your bracket, horizon, and account type, so run the numbers with your tax advisor. This is educational information, not tax advice.

Both shelter REIT dividends from current tax, but they differ in when and whether you're taxed, so the better choice depends on your situation. In a traditional IRA, REIT dividends compound tax-deferred, and you pay ordinary income tax only when you withdraw in retirement; this suits investors who expect a lower tax rate later or want the upfront deduction on contributions. In a Roth IRA, you contribute after-tax dollars, but qualified withdrawals — including all the accumulated REIT dividends and growth — are entirely tax-free; this suits investors who expect a higher future tax rate or want tax-free retirement income. Because REITs are income-heavy and tax-inefficient, some investors particularly like holding them in a Roth, where years of ordinary-income dividends can grow and be withdrawn tax-free. Keep in mind that traditional IRAs are subject to required minimum distributions (RMDs), which can be a consideration if the REIT is illiquid, while Roth IRAs have different rules. So the traditional-versus-Roth choice depends on your tax outlook, RMD planning, and goals — confirm the best fit with your tax advisor. This is educational, not tax advice.

Yes — holding a non-traded REIT inside an IRA does not change its illiquidity. The IRA is simply a tax-advantaged wrapper; the underlying investment is still a non-traded REIT, which means it's not listed on an exchange, is priced periodically at net asset value (NAV), and offers liquidity only through a redemption program that's typically capped and can be suspended. So you generally can't sell it on demand, whether it's held in an IRA or a taxable account. This illiquidity has an extra wrinkle inside a traditional IRA: required minimum distributions (RMDs) eventually apply, and if a large share of the IRA is tied up in an illiquid non-traded REIT, you could face a timing problem meeting an RMD when you can't easily redeem. That's why concentration and liquidity planning matter when holding non-traded REITs in a retirement account. So the IRA changes the tax treatment, not the liquidity — a non-traded REIT remains a longer-term, illiquid, suitability-gated investment regardless of the account. Plan your liquidity accordingly, and confirm the details with your advisors before investing.

Required minimum distributions (RMDs) are mandatory annual withdrawals that the IRS requires from traditional IRAs (and similar accounts) once you reach a certain age. They matter for REITs in an IRA mainly because of liquidity. With publicly traded REITs, RMDs are usually no problem — you can sell some shares to fund the withdrawal whenever needed. But with an illiquid non-traded REIT held in a traditional IRA, RMDs can create a timing challenge: if a large portion of the IRA is tied up in a non-traded REIT that you can't easily redeem, you may struggle to generate the cash to meet your RMD in a given year. This is one reason concentration and liquidity planning are important when holding non-traded REITs in a retirement account — you want enough liquid assets in the IRA (or across your accounts) to cover RMDs without being forced to redeem an illiquid holding at a bad time. Roth IRAs have different RMD rules. So RMDs make liquidity planning essential for non-traded REITs in a traditional IRA. Confirm the current RMD rules and your situation with your tax advisor; this is educational, not tax advice.

A self-directed IRA holding a non-traded or private REIT is generally suitable for longer-term, accredited or otherwise suitable investors who understand the trade-offs and don't need liquidity from that portion of their retirement savings. Because the underlying non-traded REIT is illiquid, NAV-priced, and offered through a broker-dealer after a suitability review, the same suitability standards apply inside an IRA as outside it — the tax wrapper doesn't reduce the investment's risk or illiquidity. On top of the REIT's own suitability, there are IRA-specific considerations: you should avoid over-concentrating the account in a single illiquid holding, plan for required minimum distributions if it's a traditional IRA, and weigh the traditional-versus-Roth tax outcome. So this strategy tends to fit investors who value the tax-sheltering benefit for ordinary REIT income, can commit capital for the long term, maintain enough liquidity elsewhere, and have completed a suitability review. It's less appropriate for those who may need ready access to the funds or who would be over-allocated to one illiquid asset. Confirm suitability with your advisor and tax professional; this is educational information, not advice.

Prohibited transactions are dealings the tax rules forbid inside a self-directed IRA, and running afoul of them can have serious consequences — potentially disqualifying the IRA and triggering taxes and penalties. At a high level, the rules are designed to keep the IRA's investments at arm's length from you and certain related parties, called 'disqualified persons' (which generally include you, your spouse, your lineal ascendants and descendants, and entities they control). Examples of prohibited transactions include self-dealing (using IRA assets for your personal benefit), buying or selling assets between the IRA and a disqualified person, lending to or borrowing from the IRA improperly, or personally using property the IRA owns. For a non-traded REIT held in a self-directed IRA, you typically avoid these issues by simply having the IRA invest passively in the REIT through the custodian — you're a shareholder, not an operator. Still, the rules are technical, and structures that blur the line between you and the IRA can create problems. So if you use a self-directed IRA, understand the prohibited-transaction and disqualified-person rules and work with the custodian and your tax advisor to stay compliant. This is educational information, not tax advice.

We help investors understand how to invest in REITs through an IRA — the tax case for sheltering ordinary REIT dividends, when a standard brokerage IRA suffices versus when a self-directed IRA is needed, how UBIT is usually a narrow concern for REIT shares, how to set up a self-directed IRA for non-traded REITs, the 199A trade-off, and the suitability considerations — so you can decide whether holding REITs in a retirement account fits your plan. REIT and non-traded-REIT interests are offered through the broker-dealer, Aurora Securities, Inc. (member FINRA/SIPC), and any recommendation follows a suitability review; non-traded and private REITs typically require accredited or otherwise suitable investors, while publicly traded REITs trade through ordinary brokerage IRAs. We help you understand which account you need and, when suitable, access offerings and coordinate with a self-directed IRA custodian. This is educational information, not tax advice — Baker 1031 doesn't provide tax or legal advice, and the IRA, UBIT, 199A, and RMD rules are technical, so your CPA and the custodian should confirm your treatment. Yields and returns are never promised; non-traded REITs are illiquid regardless of account, and past performance doesn't guarantee future results.