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The Liberty Blog: 3 Tax Planning Strategies for Real Estate Agents

Updated: Feb 24

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3 Tax Planning Strategies For Real Estate Agents
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3 Tax Planning Strategies for Real Estate Agents

We're going to kill two birds with one stone today. While we're focusing on tax panning and tax savings, we're also going to focus on retirement planning. Also, while the title is "3 Tax Planning Strategies for Real Estate Agents," this information can benefit any self-employed entrepreneur. (By the way, if you haven't started planning for retirement, the best time to do so is now!)

Without further delay, here are three strategies for all of you real estate agents (and all of you entrepreneurs) to consider to optimize tax savings for retirement.

#1 - Solo 401(k) or SEP IRA

  • Solo 401(k): First, we have what's known as an Individual 401(k) or Self-Employed 401(k). This type of plan allows self-employed individuals, such as real estate agents, with no employees other than a spouse, to contribute both as an employer and an employee. Contributions are tax-deductible, and earnings grow tax-deferred until withdrawal.

  • SEP IRA (Simplified Employee Pension): A SEP IRA allows for higher contribution limits compared to traditional IRAs and is relatively easy to set up and administer. Contributions are tax-deductible, and earnings are allowed to grow tax-deferred until withdrawal. What's nice about this plan is that real estate agents, and other self employed entrepreneurs, can contribute up to 25% of their net earnings from self-employment. That's right, up to 25% of your net earnings can be deducted and then the earnings can grow without being taxed until you withdraw at retirement.

#2 - Roth IRA Conversion

  • Real estate agents and other self-employed entrepreneurs can also consider converting traditional IRAs or other pre-tax retirement accounts to Roth IRAs. While this strategy doesn't provide immediate tax relief, it does offer tax-free growth and tax free withdrawals in retirement. If you convert during a lower income year or year when you're in a lower tax bracket, you can optimize or offset the immediate tax impact of the conversion. With this option, you in essence forfeit the tax deduction from your contributions on the front end, but you'll be able to withdraw your money tax free when you retire.

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#3 - Real Estate Investments Within a Self-Directed IRA or Solo 401(k)

  • Self-directed retirement accounts, such as self-directed IRAs or solo 401(k)s, allow individuals to invest in alternative assets, including real estate. By holding real estate within a retirement account, the income and gains generated by those investments can grow tax-deferred or tax-free, depending on the type of account (traditional vs. Roth). This strategy can offer you tax advantages, especially if the real estate investments generate significant income or appreciation while they're held in the structure of the retirement account.

In Closing

To summarize, while we only discussed a few options to optimize retirement planning and tax savings, there are numerous options available. Make sure and consult a financial advisor and/or tax professional (such as Liberty Financial Solutions, LLC) to determine the best retirement strategy based on your specific financial situation, goals, and risk tolerance.

To your success!

P.S. Make sure you get your FREE copy of our SPECIAL REPORT: "The 7 Secrets The IRS Does NOT Want You To Know!" (simply click on the link in the previous sentence, scroll down to the second section of our home page, and download your copy today!)

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