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Can I Use My Roth IRA to Invest in Real Estate?

At 1031 Exchange Place, we understand that diversifying your investment portfolio is important. While a Roth IRA is a powerful retirement savings vehicle, its ability to invest directly in real estate is limited. However, there are ways to indirectly invest in real estate through your Roth IRA, which we outline below.

  1. Real Estate Investment Trusts (REITs): REITs are companies that own, operate, or finance income-producing real estate properties. By investing in a REIT, you can gain exposure to real estate without directly owning property. REITs can be traded like stocks or mutual funds, making them accessible through a Roth IRA.
  2. Real Estate ETFs and Mutual Funds: These funds invest in a diversified portfolio of real estate-related securities, including REITs, real estate operating companies, and property management firms. Investing in such funds through your Roth IRA can provide indirect exposure to the real estate market.

It’s important to note that a 1031 exchange, which allows you to defer taxes on the gains from the sale of investment property by reinvesting the proceeds into a “like-kind” property, is not applicable to investments made within a Roth IRA. 1031 exchanges are specifically designed for direct ownership of real estate outside of tax-advantaged retirement accounts.

Before making any investment decisions, consult with a financial advisor or tax professional to ensure you understand the risks and tax implications associated with investing in real estate through a Roth IRA.