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Q. What is a real estate investment trust (REIT)?
A. A real estate investment trust is similar to a mutual fund in that the money of many investors is pooled to buy a portfolio of investments. However, instead of a portfolio of stocks and bonds, a REIT invests in a portfolio of real estate. Investors buy shares in the REIT just as they would shares in a mutual fund. Income earned by the REIT from property rents and other sources is distributed to sharehoulders in the form of dividends. Investors also earn a return from appreciation/depreciation in share price. Since most public REIT's trade on the major stock exchanges just like stocks, it is relatively easily to liquidate a REIT investment.
Q. I'm self-employed and have a Keogh retirement plan. I'm going to retire soon. Should I be thinking about transferring the funds in my Keogh account to one of the new Roth IRA's so that I can take tax-free withdrawals from the Roth in the future?
A. You can't directly transfer money from a Keogh plan (or any other type of tax-qualified plan) to a Roth IRA. To move the money to a Roth, you would have to first transfer it to a traditional Rollover IRA and then roll over or "convert" that IRA to a Roth IRA. This may or may not be a good strategy since it would involve paying income taxes on all previously tax-deferred amounts at the time of the Roth conversion. By contrast, money in a Rollover IRA remains tax deferred until the time of withdrawal. A third possibility might be to take a lump-sum distribution from the Keogh plan and use a favorable "averaging" method to compute the taxes on the distribution. (Strict eligibility rules apply. Many people won't qualify to use an averaging method after 1999.) See Shirley Shamel, CPA for help in evaluating the best option for your situation.