Roth IRAs can be a great way to save for retirement on a tax-advantaged basis. Many investors wonder if you can invest in real estate within a Roth IRA. At Fidelity, there are a few options for Roth IRA investment property that provide exposure to the real estate sector. This article will explore Roth IRA real estate investment rules, strategies, and options at Fidelity.
The tax benefits of Roth IRAs make them ideal for real estate
A Roth IRA provides tax-free growth and tax-free withdrawals in retirement. Compared to taxable brokerage investing, the tax savings can really add up over decades of compounding growth. Real estate investments like rental properties generate ongoing income and appreciation over time, making Roth IRAs a natural fit. Any rents or sales proceeds can grow tax-free rather than being taxed annually like in a taxable account.
Direct real estate ownership not allowed in Roth IRAs at Fidelity
While the tax advantages of holding real estate in a Roth IRA are appealing, the rules prohibit direct ownership of property. For example, you cannot use Roth IRA funds to directly buy a rental property or flip houses. However, there are still ways to gain real estate exposure in a Roth IRA through real estate stocks, REITs, and real estate crowdfunding platforms.
Real estate stocks and REITs offer liquidity and diversification
For broad real estate exposure, investors can purchase real estate investment trusts (REITs) or real estate stocks like real estate brokers, developers, and property managers. At Fidelity, there are numerous REITs and real estate stocks to choose from. The benefits include daily liquidity if you need to sell versus the hassles of selling physical property. Stocks also provide dividend income versus the headaches of collecting rent. And you get diversification across many properties instead of the risks of one single asset.
Real estate crowdfunding allows you to pool money into properties
Real estate crowdfunding platforms like Fundrise allow investors to pool money together to invest in larger commercial and residential properties. Investors can browse offerings online and choose projects that match their interests and return targets. While not as liquid as stocks, Fundrise does aim to provide quarterly liquidity after you’ve held an investment for 90 days. This can allow Roth IRA investors to build a diversified portfolio of real estate assets.
While you can’t buy physical property, Roth IRAs at Fidelity offer convenient real estate exposure through stocks, REITs, and real estate crowdfunding. This allows you to capitalize on the tax benefits of Roth IRAs while investing in a sector known for income and appreciation.