Should RE investors maximize IRA contributions

[Wells Mangrum]

Hello,

Should real estate investors maximize IRA contributions?

To answer this question I will assume the following conditions regarding the investor:

1)  Aged 40.

2)  High income as a physician: currently in the top tax bracket.

3)  Future non-retirement assets invested in real estate will return 18% post-tax.  This is a leveraged return taking advantage of real estate depreciation tax rules.   

4) IRA assets will be invested in stocks/bonds with an assumed annual return of 8%. (IRA returns will not be magnified by leverage.)

Benefits:

1) The assets in the IRA grow tax free.

2) Diversification. If the investor's non-retirements funds are all in real estate, then IRA investments in stocks/bonds helps diversify.

3) The IRA investment has less risk because it is not leveraged.

Disadvantages:

1) Leveraged real estate return of 18% is greater than the non-leveraged IRA stock/bond return of 8% (see assumptions above).

2)  The marginal tax rate of a real estate investor may not drop during retirement because their real estate income will continue in retirement and because taxes may increase in the future.  

This is a complicated question.  I have my own opinion but it tends to differ from the opinion of financial advisors.  So I wonder what other real estate investors think.

Thanks!