The Solo 401(k) for Realtors
A Solo 401(k) for Realtors offers many advantages. A Solo 401(k) Plan, also known as an Individual 401(k) or Self Directed 401(k), offers a self employed business owner, such as a realtor or real estate agent the ability to use his or her retirement funds to make almost any type of investment. This includes real estate, tax liens, private businesses and much more on their own without requiring custodian consent. Also, this is completely tax-free.
Additionally, a Solo 401K Plan for realtors allows agents to make high contribution limits (up to $54,500) as well as borrow up to $50,000 for any purpose. The Solo 401(k) is an ideal retirement solution for the self-employed real estate agent who is looking to save for their retirement, while investing in what they know – real estate!
Benefits of the Solo 401(k) for Realtors
The Solo 401(k) Plan offers a self-employed realtor the greatest retirement, tax, and investment advantages. This is when you compare it to a Traditional IRA, SEP, or SIMPLE IRA. A Solo 401(k) for realtors offers the same investment opportunities as a Self Directed IRA LLC, but without having to hire an IRA custodian, create an LLC.
The 2002 Economic Growth & Tax Reconciliation Act (“EGTRA”), greatly popularized the Solo 401(k) Plan. The Solo 401K Plan has become an increasingly attractive retirement vehicle for real estate agents across the country. There are many features of the Solo 401(k) plan that make it so appealing and popular among self employed business owners, such as a sole practitioner lawyer or consultant. The following chart will illustrate the advantages for a self-employed attorney of using a Solo 401(k) Plan: Solo 401(k) Chart.
Furthermore, the following example clearly illustrates the advantages of the SOLO 401(k) for realtors over a Traditional IRA and SEP IRA.
Beth, the Real Estate Agent
Beth, who is a real estate agent, earns a $100,000 a year. She is 43 years old and the sole shareholder of an S Corporation called ABC, Inc. Beth is the sole owner and employee of the corporation. She wishes to make the maximum mount of tax-deductible contributions allowable by law. If Beth uses a Traditional IRA, she will be able to make a tax-deductible contribution of just $5,000. Whereas, if she uses a SEP IRA as the retirement vehicle, Beth she has the ability to make a tax-deductible contribution equal to $25,000 (25% of $100,000). However, if Beth establishes a Solo 401(k) Plan, she will be able to make a tax-deductible contribution of $36,500 ($16,500 as an employee and a corporation profit sharing contribution equal to 25% of her compensation).
As you can see, it’s clear that the Solo 401(k) plan offers a self-employed realtor or real estate broker the greatest retirement benefit. Also, by using a Solo 401(k) Plan, Beth is able to borrow $50,000 of 50% of her account value and use that loan for any purpose. She can also invest in real estate and other investments tax-free and without custodian consent. Moreover, Beth can open her Solo 401(k) Plan account at any local bank, such as Wells Fargo or Chase. Real estate agents can roll over his or her former 401(k) or IRA funds to the new Solo 401(k) Plan tax-free. Only Roth IRA or after-tax 401(k) funds are not permitted to be rolled into a Solo 401(k) Plan.
For a real estate agent, using a Solo 401(k) Plan as a retirement plan will allow you to make high annual contributions (up to $54,500 if you’re over the age of 50), borrow up to $50,000 tax-free, plus invest in real estate and more tax-free and without custodian consent.